Partners Matthew Davis and Hannah Boundy discuss what it looks like to have a conversation with your parents about their estate plans and wishes and how to respectfully prompt those conversations.
Transcription
Hannah: Hello everyone. My name is Hannah Boundy and I’m a founding partner here at Sherwood Financial Partners. Today, I’m joined by my colleague and co-founder, Matthew Davis, to talk a little about prompting difficult conversations.
Matthew: That’s right. When it comes to financial planning, specifically Legacy Planning, there are often sensitive conversations that we encourage our clients to have with those involved in their legacy planning. Most of the time, this is a conversations that clients need to have with their heirs about their goals and expectations for their financial legacy and how they would hope their heirs participated in those goals. This could be in terms of living legacy goals a client may have that they want to invite their heirs to be a part of, or it may entail letting their heirs now how they want their estate executed after their passing – or both.
Hannah: And those can be really tricky topics to navigate because both money and relationships are really intimate areas of our lives that can bring about a lot of feelings and emotions when we talk about them and so we want to be really thoughtful about those conversations. Matt, you just shared about conversations where clients are engaging with their heirs, but sometimes those conversations are helpful when they happen with the prior generation.
Matthew: Definitely. We are finding that as a lot of clients are working to build their living legacy plans, they inevitably start to ask questions about their own parents and start to raise concerns about whether or not mom and dad have done their due diligence to make sure that their affairs are in order. And most of the time, we’re seeing these questions come from a really genuine place of caring and concern.
Hannah. Yes. I think a lot of times when you hear stories about one generation’s questioning their parent’s financial wishes, that it comes with a potentially unpleasant connotation – one that’s maybe a little more self-serving, but that’s not really what we’re seeing. What we’re seeing is clients who have a legitimate concern about whether or not mom and dad are being taken care of and have their affairs in order and whether or not that benefits generation two is less a question.
Matthew: I would agree. And at the same time, it also matters from a logistical standpoint. For the most part, we never include inheritance in our financial plans because we know that it’s not a guarantee and so for the sake of conservatism, we don’t want a client’s financial success to hinge on an inheritance. Nevertheless, we also know that there are consequences, often tax-related, to receiving an inheritance and 9 times out of 10, it’s better to plan for those events in advance, then respond to them after the fact.
Hannah: For example, the recent CARES? Act implemented a new rule regarding inherited IRAs by which an inheritor is required to distribute the entire IRA within 10 years of inheriting. Depending on the size of the IRA, this could have huge tax implications for the inheritor. Not only that, but if the beneficiaries are not set up appropriately on an IRA and one inheritor is being instructed to distribute the IRA to others, there are some messy tax consequences to that type of situation as well.
Matthew: Those are some great examples. So what do we recommend? These are really sensitive conversations to be having with your parents and there is not perfect way to have them. Still, we’ve seen a few approaches that have seemed to work well for our clients. And the first is what we like to call “going first.” By this we mean – get your affairs in order first, and then share with your parents what that process was like. Tell them about some of the hiccups you encountered and how they were solved, and tell them what aspects of the process you really appreciated and found helpful. By inviting them into the process, you give them an idea of what it might be like which may help quell some of their fears. It’s also an opportunity to raise some concerns, even if it’s indirectly. You might share that you’re glad you did an estate review because it helped you solve a certain pain point that your parents may also have.
Matthew: Another approach that we’ve seen success with, is to ask your parents what their hopes are for their legacy and if there’s anything you should know about so you can properly execute on their wishes. When taking this approach, it’s important to make it about them and not about you. This isn’t about asking how much you’ll be getting, but about expressing your desire to be informed so that what they want is what happens. For some this can be a really important logistical conversation. Your parents may have named you as an executor, but you may not know where their will is kept and what they expect you to do as their executor. Taking a more logistical approach to this conversation helps alleviate some of the emotional aspects that can accompany hard family conversations, while opening the door to having some of the more emotional conversations down the line as you learn more about the logistics.
Matthew: And finally, a sometimes simpler, but potentially less effective option is to invite your parents to meet with an advisor – with/or without you. Maybe your parents really would like the help, but don’t know where to start and are nervous about bringing you into the conversation until they’ve had a chance to fully think through what it is they actually want. For some of our own families, we’ve found that sometimes it just takes time and a little bit of organization for parents to be ready to invite their children into their financial legacies and it’s important to be respectful of that.
Hannah: I think that’s such a great point Matt – whatever path you may choose, respect is such an important posture to take. I think most of us just want what’s best for our parents and want to know that they’re going to be taken care of and that their lives and legacies will be well remembered. For those of you who find yourselves in this situation, we encourage you to reach out. We’re happy to talk through some of your concerns and share our perspectives.