Some family conversations can be uncomfortable, but necessary. While your estate plan may not be at the top of your list of fun topics to broach, it can be important to talk to your grown children and grandchildren about key documents and people that are part of that process.
“Even though these conversations are uncomfortable, your goal is to help them be prepared,” says Sandy Cairns, Senior Vice President – Senior Wealth Planning Strategist for Wells Fargo Private Bank. “This is one of the things they need to know.”
What they need to know about your estate plan
Consider giving your grown children copies of your will, trust, and other important documents, and telling them where you keep your originals. Then consider inviting your children (and possibly your grandchildren) to a family meeting with your attorney or wealth advisor to go over the highlights of your estate plan. Here, Cairns shares three important topics to cover:
1. Explain whom you’ve chosen to serve in important roles. Tell your children who you have appointed as executor or trustee, the person who will carry out the instructions in your will or revocable living trust. Also share who is named in your durable power of attorney for financial decisions and health care power of attorney; explain that those people will take care of your financial matters and make health care decisions for you if you become incapacitated.
If you picked one or more of your children to serve in any of those roles, it can be helpful for you to explain why—and to help make sure they understand your wishes as well as their responsibilities. (See “Understanding Probate, Wills, and Trusts” for more details.)
2. Share the framework of your plan. You don’t need to share exact numbers if you don’t want to. But consider explaining how your estate plan is structured and how assets will be distributed. Will your family members get their inheritance outright, or will your assets be distributed over time through a trust? If it’s outright, do they have to wait until they’re a certain age? Are there any other conditions on how the assets will be distributed? Also, if your assets aren’t distributed equally among your children, now is a good time to explain why.
3. Take the opportunity to educate your children about the “whys” behind selecting certain estate planning options.
If you have chosen a revocable living trust rather than a will:
Although used often for estate planning, revocable living trusts are not always well understood, so you may want to help your children understand that a revocable living trust can help minimize court fees and maintain privacy and also help spare them from having to go through a lengthy probate court process.
If you have chosen to leave assets in trust for your beneficiaries:
Receiving their inheritance in trust can help reduce estate taxes and can help protect assets from beneficiaries’ creditors, and it can be useful to share this information with your children who may be unfamiliar with this option. Consider providing the name of your trustee and clarifying that the trustee’s role is to provide oversight into making sure that the assets in your trust are distributed according to your wishes.
“Help your trust beneficiaries understand whether they’ll have to ask for distributions, or if those will come automatically,” Cairns says. Understanding the terms of the trust, especially any guidelines or restrictions on how the money can be spent, can help children feel more informed as they plan.
What they need to know about their own estate
Once your children become adults and have any assets at all—even just a savings account and a car—encourage them to have a discussion with an estate planning attorney regarding creating a will, Cairns says. Young adults who have more substantial assets may want to consider a revocable living trust, depending on which state they’re in and the nature of the assets. (Learn about revocable living trusts in “Choosing the Right Trust for Your Needs.”)
Knowing how to designate beneficiaries for their retirement plans, investment accounts, and life insurance policies is also important. Encourage your adult children to discuss their designations with an estate planning attorney so that they can ensure that their beneficiary designations will coordinate with what’s in their wills or trusts. Remind your grown children how important it is to review their beneficiary designations if they get married, or especially if they file for divorce (unless they want the ex-spouse to remain a beneficiary). Make sure your children know to name both a primary and a secondary beneficiary, in case the primary one dies (though you should update your beneficiary information if one of them passes away).
Cairns also recommends talking to your children of legal age about having powers of attorney in place—both for financial and for medical decisions: “The Terry Schiavo story provides a cautionary tale of the type of lengthy, costly litigation that can result when powers of attorney are not in place for someone who becomes incapacitated, and medical professionals and loved ones disagree on the course of action.”
“Help your children understand the potential consequences if they don’t have these estate documents in place,” Cairns recommends. “If they do not have a will or trust, the laws of the state will control how the assets of their estate are distributed. Not only may the distribution of their assets not be done according to their wishes, but a lengthy court-supervised process may be required to settle their estate, all at a time when the family is grieving a terrible loss.”
In the end, taking the initiative and communicating clearly about estate plans as a family can help parents and children show each other that they care and want to help make a difficult time a little easier to bear, Cairns suggests.