Have the Estate Planning Talk

In honor of National Estate Planning Awareness Week, I talked to two different professionals, each of whom offered specific advice about how to conduct difficult family conversations about money in general, and estate planning specifically. Why is this topic so hard? “Because feelings and money get tied up,” says psychologist Lisa Damour. Money can evoke feelings of control (or lack thereof), privacy, dignity, shame, fear and lack of confidence. And when we express our concrete views on financial matters in a way that minimizes the emotional aspects, things can get thorny. Just imagine an exchange like this:

Son (age 40): “Mom, have you and Dad updated your will recently?”

Mom (age 75): “Why—are you hoping that we will die soon, so you can finally pay off that big mortgage that we warned you not to take?”

You can see how these kinds of conversations can go downhill pretty fast, which is why each side needs to resist the urge to grab whatever bait is thrown out. After all, you are not going to litigate your entire relationship with your parents or your adult children during these interactions. Just like she tells parents of teenagers to “not take anything that they say so personally”, Damour’s advice applies to discussing financial and estate issues with your loved ones.

Instead, of jumping in full throttle, estate attorney Virginia Hammerle says that it is helpful “to focus on an isolated issue, like titling of a bank account or making a beneficiary designation,” which can lead to a broader discussion on family finances and estate planning.

Once you break the ice and start the process, it is helpful to ask what goals you are trying to accomplish. Do you want to ensure that your assets will be passed to the next generation and beyond? Are you worried that one of your heirs will squander any money that is left to him or her? Do you want to be charitable? Are you anxious that you will offend one of your heirs? The good news is that by discussing your concerns with a qualified estate attorney, you can build a plan that addresses the issues that currently exist. Remember not “to get stuck on the next fifty years,” says Hammerle. “Every estate plan can be changed and in fact should be revisited every few years. Here are the basic documents that you will likely draft:

• Will: Ensures that assets are passed to designated beneficiaries, in accordance with your wishes. In the drafting process, you name an executor, the person or institution that oversees the distribution of your assets. If you have minor children, you need to name a guardian for them.
• Letter of Instruction: This may contain appointment of someone who will ensure for the proper disposition of your remains, creepy, but important if you are choosing a method that is contrary to your family’s tradition.
• Power of Attorney: Appointment of someone to act as your agent in a variety of circumstances, like withdrawing money from a bank, responding to a tax inquiry or making a trade.
• Health Care Proxy: Appointment of someone to make health care decisions on your behalf if you lose the ability to do so
• Trusts: Revocable (changeable) or irrevocable (not-changeable) trusts may be useful, depending on family and tax situations. For 2016, the first $5.45 million of an estate is exempt from federal estate taxes. If an estate is above the threshold (or twice that for married couples), you may want to consider a trust.

#293 Estate Planning: Tackling an Emotional Topic

In honor of National Estate Planning Awareness Week, we invited estate attorney Virginia Hammerle on the show to break down how to tackle the often emotionally fraught topic. Hammerle says instead of diving in head-first, it is helpful “to focus on an isolated issue, like titling of a bank account or making a beneficiary designation,” which can lead to a broader discussion of family finances and estate planning.

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Once you break the ice and start the process, figure out what you are trying to accomplish and try not “to get stuck on the next fifty years,” says Hammerle. “Every estate plan can be changed and in fact should be revisited every few years." Here are the basic documents that you will likely draft:

• Will: A legal document that ensures that your assets are passed to your designated beneficiaries, in accordance with your wishes. In the drafting process, you name an executor, who is the person or institution that oversees the distribution of your assets. If you have minor children, you need to name a guardian for them.
• Letter of Instruction: This may also contain appointment of someone who will ensure for the proper disposition of your remains. This is especially important if you are choosing something that is contrary to your family’s tradition.
• Power of Attorney: Appointment of someone to act as your agent in a variety of circumstances, like withdrawing money from a bank, responding to a tax inquiry or making a trade.
• Health Care Proxy: Appointment of someone to make health care decisions on your behalf if you lose the ability to do so
• Trusts: Many have either revocable (changeable) or irrevocable (not-changeable), depending on family and tax situations. For 2016, the first $5.45 million of an estate is exempt from federal estate taxes. If an estate is above the threshold (or twice that for married couples), a revocable trust may be suitable to consider.

Thanks to everyone who participated this week, especially Mark, the Best Producer/Music Curator in the World. Here's how to contact us:

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How to Talk to Your Parents About Money

As families come together for the holidays, the last thing anyone may be thinking is, “Gee, I should talk to my folks about their financial situation!” But with busy lives, these gatherings may be a good time to at least broach the topic and to schedule a future date to conduct the dreaded, but necessary “Money Talk”. I hear your groans and you are not alone in your struggle to have these difficult financial conversations. According to a recent survey by Fidelity Investments, while three-quarters of adult children and their parents agreed that it is important to have frank conversations about money, nearly two-thirds disagree about the right timing for these conversations to occur. Parents would prefer to wait until after retirement, while their adult children want these conversations to happen well before their parents retire or experience health issues.

These timing issues seem to mask the larger problem: the “Money Talk” often invokes feelings of control (or lack thereof), privacy and dignity for the older generation. And for the adult child, it is hard to balance being responsible, while not seeming like you are prying. (For those who tell me their parents are “fine”, even if your loved ones appear to be financially self-sufficient, neurologists say that cognitive ability starts sliding as early as 60 and regulators warn that older Americans are the biggest targets of financial scams!)

All of these factors mean that it makes sense to have the money conversation when it is timely. For example, year-end is often a period when we look back and review how we have done financially. This could be an opportunity for you to ask your parents about their CD rates or portfolio performance. You may want to offer reviewing their situation with an impartial financial professional, like a Certified Financial Planner, or a CPA.

Early conversations do not have to be a forensic accounting of every last nickel of your parents' finances, but you need to explain that an open dialogue will help them feel more in control and allow you to be prepared, in case of an emergency. Once that conversation gets rolling, you can move into other important areas, like cash flow and bill paying, retirement income and the big elephant in the room, estate planning.

The good news is that Fidelity’s survey found that 93 percent of parents who have had discussions with their children about estate planning say it brought them greater peace of mind and 73 percent said it would help their children’s emotional state of mind when the time came. How can you start? Experts suggest that you frame the issue in a way that talks about your worries, rather than indicting your parents for being disorganized messes. “I just want to make sure that I carry out your wishes.”

During this conversation, you are trying to discover whether your parents have created or updated their wills, powers of attorney and health care proxies. If not, encourage them to schedule an appointment with an estate attorney. You can offer to attend the meeting, but only if they want you there. Emphasize that this is an opportunity for them to make their own decisions and to make their wishes known. One important note: Your parents may choose to do something that you don't like. Unless it is dangerous to their well-being, try not to argue for a different outcome. Keep notes of these conversations, especially if you have siblings. There are far too many stories about relatives who become estranged as a result of end of life financial decisions.

Finally, you can only do what you can do. If your parents simply shut down or refuse to talk to you about their money, don’t fight it. They may not want to talk today, but at least they know that the door is open.

Estate Planning Checklists

It’s National Estate Planning Awareness Week, which means it’s time for me to nudge you to "do estate planning". I received great feedback when I published estate planning advice last year, soon after my father died. A year later, I have fine-tuned a few things, but must say emphatically that while you should consult with and hire a qualified estate attorney to help you through the process, estate settlement requires a lot of work from the Executor/Executrix, so be prepared! Prior to death, here are the basic documents that you will need:

Legal Documents

• Will
• Letter of Instruction
• Power of Attorney
• Health Care Proxy
• Trusts (not necessary, but many people have either revocable (changeable) or irrevocable (not-changeable), depending on family and tax situations)
• "DNR" or "Do Not Resuscitate" order (this may need to be completed upon each new entry to hospital or nursing home)

Accounts

• List of all bank accounts
• List of all user names and passwords
• List of automatic pay accounts with name and contact information of each payee
• List of safe-deposit boxes
• 401 (k) accounts
• IRA's, Roth IRAs
• Pension documents
• Annuity contracts
• Brokerage account information (name, contact phone number and e-mail address)
• Detailed list of savings bonds (and copies of actual bonds)
• Life insurance policies (private and through employer)
• Long Term Care insurance policies

Other Documents

• Housing, land and cemetery deeds
• Mortgage accounts
• Proof of loans made
• Vehicle title
• Partnership and corporate operating agreements
• Previous three year's tax returns
• Marriage license
• Divorce papers
• Military discharge information
• List of contact information (contacts on accounts, names, current addresses and Social Security numbers of all people named in the legal documents, as well as the contact information for the estate attorney and CPA who will be handling the estate.)

After completing all of this hard work, you need to inform your executor/executrix as to where everything is stored. My father actually made sure that I had an executed copy of all the documents, which was helpful.

After death, things get complicated, because you have to shift between grieving and doing. I learned not to go too fast with my mother, so that she did not feel overwhelmed. It’s helpful to remember that everyone in the family grieves in different ways, which is why patience and compassion are often your most valuable commodities during the process.

Get organized. I found solace in a spreadsheet, which helped me keep track of the estate settlement progression, but you can use any system that works for you. Just remember that there are usually many moving parts and you may not be at the top of your game for remembering everything that needs to get done. A visit to your favorite stationery store will help you keep records of everything stored neatly in one location.

Request plenty of death certificates. Some institutions want originals, not copies, and it’s easier to make the request from the funeral home, not after the fact from the city or state.

Keep track of all bills that are attributable to the estate. These include funeral and memorial arrangements, death notices and other ancillary expenses. The estate can reimburse individuals for these costs.

Contact the estate attorney. When you are ready, schedule time to meet with the estate attorney. He or she will likely tell you to gather documents and to ascertain a date of death valuation for all accounts to which the deceased held title. If there is a surviving spouse, you should itemize what is in both the living and deceased spouse’s names.

Contact the CPA. Even if there are no estate taxes due, in most cases, it will be necessary to file an estate tax return. If you prepare your own taxes, it may make sense to hire a pro to help walk you through the process.

A well-planned estate is a wonderful legacy you can leave your heirs--instead of untangling a messy estate, they can follow concrete steps, which allows them to take care of business while mourning their loved one.

Royal baby: Good reminder to draft your will!

When a new baby arrives, parents are overwhelmed by the basics, like sleep patterns, feeding schedules and diaper changing. But. it's also a time when financial matters should come to the fore. In that spirit, I am going to be shameless and use the news of the Royal birth to remind you that a new baby is a perfect time to review the basics of estate planning! Here what you need to consider:

WILL: A legal document that ensures that your assets are passed to your designated beneficiaries, in accordance with your wishes. In the drafting of the will, you will name an executor, the person or institution that oversees the distribution of your assets.

Your will can itemize where every asset will go, or you can draft a Letter of Instruction, which details your wishes as an attachment to your will. A Letter of Instruction can make it easier to change your mind about distributions, without having to redraft the entire will.

For new parents,  a will is where you need to name a guardian for your minor children.  If you die intestate (without a will,) your state of residence will determine what happens to your estate and who should raise your kids. That potential alone should prod you to get going with the process.

PROBATE: The legal process by which a state court officially appoints the Executor and accounts for the deceased’s property and assets, as well as debts. Probate is a public process, which can be lengthy and costly, but usually goes fairly smoothly, as long as the estate is not contested by any heirs.

HEALTH CARE PROXY: The document that allows you to appoint someone to make health care decisions for you if you lose the ability to make decisions for yourself.

LIVING WILL: Similar to a health care proxy, though in many states, a living will is not a legal document and medical decisions may not be based on it alone. However, it is a way to communicate what types of medical treatments you would or would not want.

POWER OF ATTORNEY: The form that allows you to appoint someone to act as your agent in a variety of circumstances, like executing a trade, withdrawing money from a bank or responding to a tax inquiry.

TRUSTS: Like a will, a trust can be used to transfer assets and detail your wishes to your heirs. (Guardianship can only be addressed in a will.) There are various types of trusts, but the one that is often used to avoid estate taxation for married couples is called a “Credit Shelter Trust”. This type of trust is structured so that each spouse can utilize his or her basic exclusion amount, thereby allowing couples to pass up to $10.5 million federal tax-free to their heirs in 2013. While there aren’t too many people who are subject to federal estate taxes (the IRS said 15,000 estate tax returns were filed in 2010), a gross estate can add up quickly when life insurance proceeds and real estate assets are included. Also, estates may be subject to state taxes, so be sure to check with your attorney to determine whether a trust may be advisable.

Many people prefer to use trusts, even if their total estates are below the tax limit, because assets held within trusts avoid probate. A trust also allows a maximum amount of control over disposition of those assets.

Because these are legal documents, it may well be worth the money to hire an estate attorney to draft them. To keep your costs down, make sure you know how you want your assets distributed and who will be named guardian before you set foot inside the lawyer's office. The whole process often takes only 5 to 10 hours, a relatively small investment of time, considering the importance of the subject.

© 2013 TRIBUNE MEDIA SERVICES, INC.

Mid-year financial update: What to do with your money now

The Federal Reserve has thrown a wrench into what was shaping up to be a very good six months for investors. Since you can’t do much about the timing of the Fed’s policies and the gyrations in the market, six months into the year is a perfect time to revisit the financial issues over which you actually have control: your investments, retirement savings and some of those other financial to-do’s that have been on your list for a while.  Investments: Quit complaining about the markets and DO SOMETHING. Remember that if you are a long-term investor, periodic market pullbacks are great opportunities to rebalance your accounts so that your allocation remains in check. This requires that you override your emotional urge to keep winning funds and dump those that are lagging. But that’s the point of asset allocation—various funds are supposed to move in different directions at different points in the economic cycle.

Bonds: Given the recent move in the bond markets, you may be tempted to sell all of your bonds. But of course that would be market timing and you are not going to fall for that, are you? Here are alternatives to a wholesale dismissal of the fixed income asset class:

• Lower your duration: This can be as easy as moving from a longer-term bond into a shorter one. Of course, when you go shorter, you will give up yield. It may be worth it for you to make a little less current income in exchange for diminished volatility in your portfolio.
• Use corporate bonds: Corporate bonds are less sensitive to interest-rate risk than government bonds. This does not mean that corporate bonds will avoid losses in a rising interest rate environment, but the declines are usually less than those for Treasuries.
• Explore floating rate notes: Floating rate loan funds invest in non-investment-grade bank loans whose coupons "float" based on the prevailing interest rate market, which allows them to reduce duration risk.
• Keep extra cash on hand: Cash, the ultimate fixed asset, can provide you with a unique opportunity in a rising interest rate market: the ability to purchase higher yielding securities on your own timetable.

Retirement: Many people say they are worried about retirement, but most of them haven’t done any planning to help themselves. Any conversation about retirement must start with an easy step: calculating  your retirement numbers. EBRI’s “Choose to Save Ballpark E$timate” (www.choosetosave.org/ballpark/) is easy to use, or check out your retirement plan/401(k) website for more retirement tools.

Homeowners and Renters insurance: It seems like the past year has seen an unusual number of natural disasters from tornados to hurricanes to wild fires. Summer often brings more scary weather, so before an event occurs; make sure that your current coverage is adequate. The three biggest mistakes that people make with their homeowners or renters insurance are: 1) under-insuring; 2) shopping for price only and not comparing apples to apples; and 3) not reading policy details before a loss occurs.

Estate Planning: If you haven’t done so already, PLEASE DRAFT A WILL! I advise hiring a lawyer to prepare a will, power of attorney and health care proxy/living will. If you insist on doing it yourself, you can use a software program like Quicken WillMaker. All of your estate documents and final instructions should be stored in a safe place – don’t forget to provide copies to your executor/trustee.

If your total estate is greater than $5.25 million this year, a revocable or changeable trust will shelter your unified tax credit against federal estate and gift taxes. Many states impose a state death tax at lower levels, so check the rules. Even if your estate is unlikely to incur estate taxes, you may want a trust to better control the disposition of your assets. Revocable trust assets are not subject to probate.

Volatile markets are always unsettling, but doing what you can now, may help you feel more in control and enjoy the second half of the year a little more.

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