Did You Tell The Kids? The Importance of Reviewing Estate Plans with Your Children

How much should your children know about your estate plans?

From wills, living wills, trusts, and powers of attorney, getting estate planning affairs in order can be a lot of work for parents and when it's done, it's often filed and forgotten until it emerges under much more difficult situations. If you've gone through the work to plan and organize your estate be aware, there's still more work to do. Sharing these plans with adult children is an important last step even if it seems like a private or uncomfortable conversation.

The fact is, many children are just as nervous to ask their parents about their estate plans. Consider that they are already hearing the alarming news of the rising costs of healthcare and long-term care and might be worried they will have to dip into their own retirement funds to share the financial burden of your healthcare costs or assisted living care bills. You can put them at ease by reviewing your plans with them well in advance giving them a comfort level with your financial advisor and your estate plan well before the sadness and emotions of your passing are present.

Starting the Estate Plan Conversation

How you approach the discussion about where your money is, how your estate plans are structured and your wishes for end of life care depends on your relationship. It doesn't have to be complex. A simple chat about who your financial advisor is and who you've assigned as your power of attorney is a smart start. Deeper conversations about how your estate will be divided or gifted allows them to plan ahead. 

In fact, how you plan to distribute your money could have significant tax implications for your children; if they understand what may be coming, they can work to reduce the tax liability ahead of time. 

Leaning on Your Financial Advisor

Your conversations might be better served by letting your financial advisor do the work for you.

Ask your advisor to invite your children to his or her office or to a video or phone conference call to review the plan and explain the impact your gift can have. Your advisor can layout the options they have to grow their inheritance or minimize the taxes of your legacy gift. It's important that they gain a comfort level with this person and have their contact information on hand so the transfer of wealth is less overwhelming. 

At Bradford Financial Center, our certified financial planners encourage their clients to begin this dialogue as soon as possible while they have the luxury of time and to also consider the tax implications of the assets.

"We're happy to invite the families into our office or meet them to review as many aspects as our clients' plans as they want. It's so important to introduce the beneficiaries to how this transfer can impact their own taxes," says Shallon Weis, CFP, AIF, a certified financial planner with Bradford Financial Center. "Their gift can have unexpected consequences especially on the beneficiary's cost basis because the value of appreciated assets like stocks, bonds or real estate on the day the account holder dies becomes the beneficiary's cost basis affecting capital gains tax when those assets are sold,"

Discuss the Impact of Your Assets
The types of assets you retain at your death can deliver another unwanted surprise if beneficiaries aren't aware ahead of time. ​Annuities can impact the tax brackets of a beneficiary because it is a non-retirement, tax-deferred asset. For untaxed growth, the carrier issues a Form 1099 when the asset is inherited which must be included as gross income when your beneficiary files income taxes.

Another good reason to update beneficiaries on your plans is to ensure your inherited IRA or 401(k) required minimum distributions (RMD) are managed. The tax penalty for missing this RMD is 50% of the total RMD on top of their ordinary income tax rate. Your financial advisor can offer valuable solutions for your children to avoid lump-sum withdrawal penalties and position them to retain more of your legacy in the long run. 

Ready to schedule a family financial meeting? Let Bradford Financial Center initiate the conversations and bring everyone to the table for a review of your plans that just might change their lives.