Estate Planning 101: Helping Your Parents Secure Their Legacy

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As your parents age, you want to do everything you can to help them live comfortably, maintain their independence, and enjoy their golden years. Depending on their age, health, and level of financial security, you may be involved in caring for your parents in some capacity. Perhaps you serve as a full-time caretaker or assist in a smaller capacity—you give them rides around town, make meals, or help them cover certain expenses, for example.

While it’s not something most parents and children want to discuss, have you talked to your parents about what’s in their estate plan (if they have one)? Taking the time now to understand their wishes, ask questions, and make changes as needed can reduce stress tremendously in the future and protect your parents’ estate from potential legal or tax implications.

Let’s review the basics of estate planning together, including what you can do to help your parents avoid common mistakes and effectively prepare for the future.

First, What Is Estate Planning?

There’s a common misconception that estate planning focuses solely on what happens to your property after death.

In reality, estate planning is a process that proactively manages your physical property and non-physical assets (like bank accounts, brokerage accounts, insurance policies, etc.) in the event you die or become incapacitated. That’s right, estate planning can help you prepare for the possibility that your parents may one day be unable to communicate their desires directly (whether due to an accident, illness, cognitive decline, etc.).

Ideally, a well-rounded estate plan should account for your parents’ assets and debts tax-efficiently and cost-effectively.

Why Is Estate Planning So Important?

The unfortunate truth is nobody knows when their last day will be. Even if your parents are in perfect health today, you could be looking at a different reality a year from now. Remember that the more we age, the more prone we become to illness and cognitive decline. Taking the opportunity now to talk through what your parents already have planned out and helping them fill in the gaps will ensure you’re well-prepared for the road ahead.

With time on your side, you may also be able to help your parents accomplish more meaningful goals they hadn’t considered before, like establishing trusts for grandkids, incorporating charitable giving into their estate plan, gifting during their lifetime, or other rewarding endeavors.

Acknowledging the Emotional Aspect of Estate Planning

Before diving headfirst into your parents’ estate plan, try to approach the situation with sensitivity and understanding that it may be uncomfortable or embarrassing for them to discuss it with you.

If they haven’t been open about their financial situation in the past, it may be a big ask to expect them to pull back the curtain and show you everything. Instead, help them understand why you’d like to work with them on updating (or establishing) their estate plan and what your goals in doing so are.

If you have siblings, aunts, uncles, or other close family members, include them in these initial conversations. Money and death are touchy subjects for families, and being transparent from the get-go may help you avoid family disputes in the future.

How to Engage in Constructive Conversations

Don’t be surprised if your parents seem initially hesitant, defensive, or resistant to discussing their estate plans with you. Try to communicate calmly rather than getting angry or impatient with their response. Remind them that this will help them if they become unable to advocate for themselves and will help you (and other heirs) reduce stress after their passing.

It may be helpful to bring a professional, like your financial advisor or estate attorney, into the conversation. They can help facilitate these challenging discussions and assure your parents of the importance of early estate planning.

Organizing Essential Documents and Assets

When it’s time to review your parents’ estate planning efforts so far, have a list of all the essential documents, statements, and assets that should be included.

Non-physical assets and documents include:

• Real estate titles and related documents
• Insurance policy information (particularly life insurance and long-term care policies)
• Checking and savings account info
• Brokerage accounts
• Retirement accounts (401(k)s, IRAs, pension plans, etc.)
• Bonds
• Annuities
• Login information to online accounts (cloud storage, email, social media, etc.)
• Information on outstanding debts (personal loans, credit cards, mortgage, etc.)

Physical assets include:

• Houses and investment properties
• Safety deposit box
• Jewelry
• Collectibles
• Cars
• Boats
• Sentimental items

Work with your parents to compile an “inventory” of all valuable and sentimental items that must be accounted for within the estate plan. By starting with this, you can better ensure you won’t leave something meaningful out of your planning efforts.

Are You Responsible for Your Parents’ Debt After Death?

If your parents die with outstanding debt, you may be relieved to know that, in general, you (or other heirs) will not be liable for paying off the debt. However, in most cases, the debt will be repaid out of the estate—which could impact how much you inherit.

The exception is if you co-signed a loan or owned a joint account with your parents, in which case lenders would have the right to come after you directly to repay what’s owed.

There are a few more nuances and exceptions to the rules regarding debt repayment after death. If you’re concerned about this, we can discuss the possibilities based on your circumstances.

Essential Estate Planning Documents

Let’s review some of the most common estate planning documents you’ll likely come across when helping your parents establish or update their estate plans.

Will and Testament

A will is undoubtedly the most well-known estate planning document, but its capabilities are surprisingly limited.

A will is meant to:

• Name an executor (the person who will be in charge of distributing your estate after your passing).
• Dictate how your assets and property should be distributed after your passing.
• Name a legal guardian for minor children or adult dependents.

We say a will’s function is relatively limited because the beneficiary designation on any account or policy will override what’s written in your will.

In addition, your parents’ wills are subject to probate, a legal process that validates the will and oversees the distribution of assets. Probate can often be long, costly, and public.

Trusts

Trusts are valuable tools for bypassing the probate process and controlling how and when your beneficiaries receive their inheritance.

There are several different trusts available, each with its own legal requirements, tax considerations, and levels of protection. 

But generally, a trust allows your parents to separate their assets from their estate legally. Putting assets into a trust can help you reduce the value of your estate, which can protect it from state or federal estate taxes. They may transfer ownership of the items to the trust and establish parameters for when and how their beneficiaries may receive access. For example, your parents could establish a trust for their grandchild and stipulate that they receive a third of their inheritance at age 18, another third at age 25, and the remaining amount at age 30.

Trusts can be complex, costly, and (in some cases) challenging to reverse. If you’d like to pursue this option with your parents, we can discuss the pros and cons together in more detail.

Power of Attorney

As we mentioned earlier, estate planning is about more than managing property after death—it can help your parents during their lifetime. A power of attorney, for example, is a document that allows an individual (often a family member or financial professional) to make decisions on behalf of another person.

For estate planning purposes, it’s important to ensure that your parents establish a durable power of attorney. This means the POA remains legally binding even if the individual becomes incapacitated or unable to communicate. 

Advanced Healthcare Directive

An advanced healthcare directive is a document that outlines what sort of medical treatment your parents would like to receive (again, in the event they can’t communicate for themselves). This includes what sort of end-of-life care they want, what medications they do and don’t want to be administered, and other relevant information.

Don’t Forget About Tax Planning

If your parents have a sizable estate, it may be subject to federal estate taxes after their passing. Some states also implement their own estate and inheritance taxes. 

Currently, the states with either estate or inheritance taxes (or both) include:¹  

• Connecticut
• Hawaii
• Illinois
• Iowa
• Kentucky
• Maine
• Massachusetts
• Minnesota
• Nebraska
• New Jersey
• New York
• Oregon
• Pennsylvania
• Rhode Island
• Vermont
• Washington
• Washington, D.C.

Remember that this list changes periodically as states update their tax laws.

If you’re concerned about your parents’ potential tax liability, we can help you review strategies for minimizing taxes during transfer. The IRS allows taxpayers to gift throughout their lifetime, for example, tax-free up to a certain amount (up to $18,000 for 2024).² 

Need Help Managing Your Parents’ Estate Planning?

It’s important to periodically review your parents’ estate plan with them and your trusted estate planning professionals (including financial advisors, accountants, and estate attorneys). Anytime your parents experience a life change, such as selling their home or welcoming a new grandbaby, help them make the necessary changes to account for these updates in their estate planning documents.

In addition, tax laws change regularly, meaning your parents’ documents could become outdated over time, even if their circumstances have remained the same.

If you’d like to learn more about how we can help you and your loved ones conquer the estate planning process, don’t hesitate to reach out to our team today.

^Sources:

^{1Does Your State Have an Estate or Inheritance Tax?}

^{2IRS provides tax inflation adjustments for tax year 2024}