Parents don’t always share information about their finances with their children, even when those children are adults. But it’s important for aging parents to talk with their sons and daughters about their assets so that when the time comes for the children to take over their parents’ finances it’s an easy transition.
“It’s often the case that sons and daughters don’t have the complete picture of their parents’ finances,” says Andrea N. Ellis, CFP®, a senior wealth manager at Budros, Ruhlin & Roe, Inc. “That means adult children don’t know anything, or very little, about their parents’ estate and that can cause problems if the parents become incompetent or die unexpectedly.”
Smart Business spoke with Ellis about the questions that children should ask their elderly parents to make the transition of assets seamless.
What problems might arise if children have no knowledge of their parents’ finances?
Often sibling rivalries can be exacerbated if no one knows who’s responsible for what. If, for instance, a child is named as a joint owner on an account rather than just having power of attorney, the sibling named on the account inherits all the assets in the account regardless of whether that’s what the parents wanted. That makes it difficult for those assets to be split among the other siblings.
Further, if the parents become incompetent and their children need to manage the estate, it can get challenging without clear roles or the legal designation to do what’s needed. For instance, it’s hard to work with brokerage accounts if you’re not the appointed power of attorney or named trustee. That’s why an estate document is so important. It specifies who can make decisions.
What should children know about their parents’ finances?
Parents should be open with their children about estate documents. Those documents should name an executor in the will, a trustee if there’s a trust, a financial power of attorney and a health care power of attorney.
Parents should specify what accounts they have and where they’re located. They don’t need to reveal the value of each account, just enough details so they can be accessed in the event of a disability or their death.
Here are some questions individuals should ask their elderly parents:
- Do they have estate documents and where are they kept?
- Who is named as the executor of their will and trustee of their trusts?
- Do they have a financial power of attorney document and, if so, who will fill that role?
- Do they have health care power of attorney and living wills and, if so, who have they named to make health care decisions?
- What assets do they own and how are the assets titled?
- Who are their advisers and what is their contact information?
How can parents decide which child to put in which role?
Ideally, the executor of the estate would reside in the same state as the parents. While it’s not legally necessary, it makes it easier to navigate probate court. For the health care power of attorney, it’s even more important to name someone who is close by so they can be present if needed.
The executor or trustee doesn’t need to be one of the children. It could be an outside party such as an attorney or bank. Also, consider naming more than one executor or trustee so if someone steps down, another can step up.
When should the discussion about finances take place?
The conversation should happen when the parents feel the children are mature enough to handle the discussion, typically when the children are independent and taking care of their own finances. Hold a family meeting in the office of a lawyer or financial adviser. These meetings don’t have to be about numbers, just a plan for how things should be handled and who is responsible for what. A financial adviser or attorney can help facilitate the conversation or explain things in deeper detail. It also allows the children to get to know the parents’ advisers so they feel comfortable working with them.
These decisions must be made. It’s better for the parents to have their say than to leave it to their heirs, or worse the courts, to fight it out.
Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.