Retirement Weekly: 3 tips for navigating estate planning with loved ones

Estate planning is a cornerstone of any healthy financial plan, but it can be difficult to discuss.

Though end-of-life planning is a sensitive topic, sitting down to consider a loved one’s estate and distribution of wealth not only sets families at ease, but ensures smooth transitions of assets without unnecessary legal hurdles.

Estate planning meetings often happen between adult children and their elderly parents, but in my own role as a financial adviser, I bring up estate planning with clients whether they’re seventy or thirty-one. It’s never too early to begin, because you can never predict when you’ll need a well-planned estate.

If you’re considering beginning the process of estate planning with a close family member like an elderly parent or a new spouse, here are my top three recommendations.

1. Emphasize the ultimate benefit: peace of mind

Estate planning helps the transfer of property take place seamlessly and minimizes estate tax liability of your assets in the event of your passing. But, in my experience, the clients feel the foremost benefit of this process is simply peace of mind and it’s important to emphasize the value of its outcome when broaching the subject.

A well-planned estate will give your family member greater confidence that their loved ones, or designated organizations, will receive the property that they want them to have after they pass –with as little expense and hassle as possible. Assets aside, estate planning can even give individuals a sense of calm about their wishes for their end-of-life arrangements. For example, over the years a lot of clients have expressed to me what they want their funeral to look like–but without putting it down on paper, their family or friends may not have known to arrange the services they hoped for.

2. Be as open as possible

The best way to enter an estate planning conversation is with an open mind. This is the time to be honest, and communicate openly about your loved one’s wishes on how they’d like to distribute their estate and wealth either during life or death.

A lot of assumptions can be made about end-of-life financial planning, like parents who assume their children won’t struggle to divvy up their assets. I’ve heard from so many clients that because their children get along, they absolutely won’t fight about their parents’ estate. Unfortunately, this assumption can put a lot of stress on surviving siblings. So rather than making guesses, it’s best to communicate clear expectations during the planning process and ideally with a legal professional and financial adviser by your side.

It’s also critical to be thoughtful about the selection of trustees and executors. Encourage your parent or spouse to name an executor who is organized and thorough. Once this person is selected, make sure they know where all of your loved one’s assets are. It can be incredibly challenging for an executor to be in charge of handling an estate without any idea where to begin.

3. Pay careful attention to beneficiary selection

Assigning beneficiaries can have important tax implications, so this is a key consideration when discussing estate planning with your family member. It’s very common, for example, to name a trust as the beneficiary of an IRA account when your children are young. But as they grow up, this arrangement can become troublesome.

When an IRA is distributed to a trust, it hits the income tax trigger right away. Those assets will be taxed immediately, before being distributed to beneficiaries. If, instead, your loved one selects their children as direct beneficiaries of their IRA, those children will have other options available to them independently of one another. Some of these options could provide substantial income tax savings.

Another potentially sticky situation is the “transfer on death” designation for individual accounts. This designation is similar to a beneficiary designation for a retirement account, but it allows your parent or spouse to name beneficiaries when they pass and prevents their money from going through probate. Probate can be a lengthy, often expensive process—and the cost is really unnecessary if you set up an appropriate “transfer on death” designation.

For these reasons, I’m adamant about reviewing beneficiaries once a year with my clients. It’s incredibly important for your family to understand the ins and outs and repercussions of naming different types of beneficiaries.

The best time to discuss estate planning with your beloved ones or parents is, truly, now. When you’re thinking of it, and it’s top of mind, and you can implement a plan that will give all parties confidence. Engaging a financial adviser to help you navigate the process will help you and your family member understand different potential strategies and the outcomes of each, so you can set an intentional plan and have greater peace of mind moving forward.

Faron Daugs, CFP, is founder and chief executive of Harrison Wallace Financial Group.

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