Thanksgiving Food For Thought: Talking To Your Parents and Grandparents about Estate Planning

Tomorrow, families across the United States will gather to celebrate Thanksgiving.  Both immediate and extended families will be spending a significant portion of the next few days with each other and inevitably, interesting discussions will emerge.  One discussion point that will be less likely to emerge than most is about estate planning, specifically the plans parents and grandparents have in place. But while talking about this topic may not be the happiest way to spend your holiday, having a conversation with your older relatives is essential to protecting them, their assets and your own planning.

There are several reasons why a child (or grandchild) should be concerned with their parents’ and grandparents’ estate plans.  First, knowing what your senior relatives plans are will allow for a smoother transition and administration of their assets if they die, become severely disabled or incapacitated.  Second, with nearly 75% of all adults over 65 having some form of a long-term care event during their lifetime, children and grandchildren may have to coordinate the payment of their elder relatives long-term care expenses.   Third, in the event of death, severe disability or incapacity, children and grandchildren may be asked to serve as fiduciaries for senior family members as executors of their estates, trustees of trusts or agents under power of attorneys and health care proxies.  Finally, children and grandchildren may be named as beneficiaries of their parents’ and grandparents’ estates.  An inheritance can raise issues for the inheriting children and grandchildren including tax and creditor related problems.

Understanding why you should speak to your parents and grandparents about estate planning is significantly easier than actually speaking to them about the subject.  Each family member has their own temperament when it comes to discussing financial and other personal matters, so an awareness of how a relative will react is key to avoiding unnecessary conflict.  If they are open to having a discussion about estate planning, explain that you are coming from a place of concern.  Inquire about what they have and have not done in terms of their planning.

If, like many parents and grandparents, they don’t want to discuss this issue, there are other ways to ensure that they are protected.  If they have already worked with an estate planner, encourage them to check in with their advisor to ensure their plan is up to date.  If they have not prepared an estate plan, offer them the names of attorneys, financial planners and accountants that you work with and with whom you trust.   While some older relatives may not want to openly discuss their planning with their younger relatives, many will appreciate the opportunity to speak with a professional with no personal connection to them.

Once you are able to begin the discussion, by yourself or through a professional, there are certain subjects that should be discussed.  Among them:

1)   Nature and location of the estate planning documents;

2)   What assets do they own and where are they located;

3)   Who are their professional advisors;

4)   How are they planning to pay for any long-term care expenses;

5)   Who are the beneficiaries of their estate; and

6)   Who are the fiduciaries that will be in charge of their affairs if they die, become severely disabled or incapacitated.

 Having an estate planning conversation with your parents and grandparents will be difficult.  Even if they are completely transparent and willing to talk, the subject matter can be difficult to think about.  Nevertheless, as a loving relative, it is important that your relatives are protected and that their ultimate wishes as to their estates and well-being are known and able to be fulfilled in a timely and proper manner.

Please contact for more information about multi-generation estate planning.

Elections (may) Have Consequences: The Fiscal Cliff and Estate and Gift Taxes

For much of 2012, the looming changes to the tax rates and exemptions set to go into effect in 2013 have weighed heavily on all discussions of estate planning.  The so-called “Fiscal Cliff” and the 2012 Presidential and Congressional elections left planners with uncertainty of whether the scheduled sunset provisions of the Bush/Obama tax cuts would go into effect or if Congress and the President would strike a deal before year’s end.

Tuesday ‘s election ended some of the uncertainty with regard to the respective players in this debate and what type of leverage they would have.  President Obama won a second term as President while in Congress, the Democrats extended their majority in the Senate.  In the House, Republicans retain control, albeit by a slightly slimmer margin.  In the days following the election, the three lead players in the upcoming negotiations (President Obama, Speaker of the House John Boehner and Senate Minority Leader Mitch McConell) each expressed their positions with each retaining their previous stance on increasing or retaining existing tax rates and exemptions.

Earlier today, President Obama announced that he will meet with Congressional leaders next week to begin working on a deal to avoid the Fiscal Cliff.  The possible outcomes are several:

  1. The President and Congress will agree to a comprehensive deal-Both sides have indicated a desire to achieve a deal on both tax issues and spending cuts.  But despite the results of the election, there appears to be no true bridging of the two sides polarized positions.  This may change  after next week’s negotiations, but such a change would reflect a major shift in tactics and attitudes.
  2. The President and Congress will agree to a temporary, non-comprehensive plan-In his press conference today, President Obama stated he was ready to sign  into law the permanent extension of the income tax rates for 98% of all taxpayers.  The Senate has previously passed such a bill, but the House has refused to even vote on it.  It is possible that they will now agree to separate those tax rates from other issues, but that remains unlikely.  More likely would be a temporary extension of the current tax rates and exemptions similar to the extension passed in 2010.
  3. No deal is reached before the end of the year-If no deal is reached before the end of the year, the tax rates and exemptions revert back to their pre-President Bush levels.  While this may be frowned upon by many financial analysts, this would change the political dynamic  significantly and may force one or both sides to finally come to a comprehensive deal.
  4. A deal is reached on issues other than estate and gift tax rates and exemptions-The previously mentioned Senate bill made no mention of any extension, increase or decrease to the estate and gifts taxes.  During the Presidential campaign, neither candidate spent much time discussing these transfer taxes.  For those reasons, it would not be surprising to see the income tax issues resolved while the gift and estate tax issues are left to sunset and possibly be renegotiated in 2013.

If we are to believe the President, in any of these four scenarios, we should expect to see the federal estate and gift tax rates to increase and the respective exemptions to decrease come 2013.  To best prepare for these changes, you should consider the following three pieces of advice:

1. Make 2012 gifts ASAP-The current gift tax exemption of $5.12 million is unlikely to ever return to this high level in the foreseeable future.  For those with the means or the need to utilize a 2012 gift, it is already past the point of making more complicated gifts.  With that said, by utilizing transfers to a grantor trust, it is still possible to make a 2012 gift today of cash, securities or even a promissory note and substitute harder to value assets in 2013.

2. Consider or reconsider the use of a credit shelter trust under your will-The lower estate tax exemptions that will likely go into effect will make using a credit shelter trust, a testamentary trust that allows property to pass estate tax-free at the death of both spouses, more attractive.  Since 2010, such trusts were less appealing given the disparity between Federal and State estate taxes.  If the exemptions are reduced, that disparity will decrease as well.

3.  Speak to an estate planning attorney and stay informed.  This is a fluid issue and things may change dramatically very quickly.  It is important to keep in touch with your estate planning attorney to learn about any changes.  If you do not have an attorney, you can also keep yourself updated by reading this and other estate planning blogs.

For more information about the 2012 Estate and Gift Tax changes, please contact