Communicating openly can help everyone prepare and plan for the future.
Many parents may find it uncomfortable, or even believe it is unnecessary to inform their children about personal finance matters. Yet, communicating openly with your family members can help to reassure them about your financial and health care wishes. This may also ease the decision-making process for your family in many important areas.
As time goes by, informing your children of financial, estate, and medical arrangements that could affect the entire family helps everyone prepare and plan for the future. This does not need to include detailed facts and figures; however, you may want to consider sharing the following information with your adult children:
Life Insurance. Life insurance is typically purchased to provide a death benefit to help cover final expenses, estate taxes, outstanding mortgages, other liabilities, and lost income. Knowledge of the existence and location of life insurance policies can be of the utmost importance to children when settling their parents’ finances in a timely manner.
Other Insurance. Be sure to inform children of other insurance policies that you may have, including health, disability income, and long-term care insurance. If you’re age 65 or older, make sure your children have a basic understanding of Medicare coverage and are aware of any health insurance policies that exceed Medicare coverage. Older adults can greatly benefit when their children understand and follow appropriate procedures, as well as submit any necessary forms on deadline.
Wills. Preparing a will allows you to avoid leaving the disposition of your estate up to your particular state and its probate laws. To help ensure that your assets are distributed according to your wishes, both you and your spouse should prepare wills, review them regularly, and make necessary updates as circumstances change.
Although specific contents can be kept private, it is important to disclose the existence and location of wills to several family members or a trusted legal advisor. Keep in mind that bank safe-deposit boxes may be temporarily sealed at death, so you may want to choose an alternate location for this key document. For example, the original will may be left with your financial advisor for safekeeping.
Trusts. Trusts can help protect your estate from unnecessary taxation or mismanagement. Make sure to discuss pertinent terms with those who will be involved. As children reach adulthood, it is common for parent to select a responsible son or daughter to act as trustee in the event of the parents’ death.
Living Will. This document specifies your preferences regarding the administering or withholding of life-sustaining medical treatment. Under many state statutes, a patient must be considered “terminal”, “permanently unconscious”, or in a “persistent vegetative state” before life support can be withdrawn. Be sure to provide copies of living will to anyone who may be involved with the health care of you or your spouse, and keep originals in a safe, readily accessible place.
Health Care Proxy. This legal document allows you to appoint a person to act as an agent on your behalf to make medical decisions, should you become incapacitated. It is important to file a copy of the health care proxy with your primary doctor and your hospital, if possible. In addition, be sure that the copy individual appointed as your agent retains a copy.
Durable Power of Attorney. With a durable power of attorney, an individual or financial institution may act as an agent to oversee your legal and financial affairs, even if you become incapacitated. Grown children need to be informed of the steps that have been taken to ensure the competent direction of your finances, should the need arise. However, their actual involvement in your financial matters may be limited, according to your wishes. A power of attorney automatically terminates upon the death of the principal.
Assets and Debts. It can be beneficial for your children to know that you have compiled a list of your assets and debts, even if you choose not to show them the list. An asset list updated regularly may include information on your bank accounts, real estate holdings, pension payments, annuities, business agreements, brokerage accounts, boats, cars, artwork, collectibles, jewelry, or other valuable, and insurance policies. A debt list may include information on your current mortgages, consumer indebtedness, personal loans, a business obligations. For both lists, be sure to identify where the paperwork and associated files for each item can be found.
Initially, preparing these lists and the associated documentation may seem like an overwhelming task. However, once completed, both you and your adult children may experience a sense of relief in the knowledge that thoughtful planning was discussed and implemented according to your wishes.