A reader who goes by TxBossFan reached out to me not long ago, asking to share some information he learned the hard way.
Of all of the awkward conversations you can have with your parents, talking about their eventual passing may be the most difficult, but it’s also the most important. You want to know where their assets are, what their wishes are for them, how to access them in their absence, and so much more.
TxBossfan created this outline after having to deal with the simultaneous grieving and financial implications of losing both parents in a short period of time in 2019.
With the holidays approaching and many of you traveling to visit with family, you may want to consider having the talk or at least introducing the fact that there is much to consider when you have aging parents.
I want to express my gratitude to the author of today’s guest post along with my condolences. I can only imagine that the holidays will be very different for him and his family this year, and that abrupt change cannot be easy.
Having the Financial Talk… With Your Parents
I have been a supporter of PoF’s teachings for several years. The characteristics which caused me to be an advocate of the PoF philosophy was inspired by my parents who successfully raised four children in a very middle class upbringing. As they aged, I was able to assist in their care, both physical and financial.
Unfortunately, they both died within a three month period earlier this year, following a cancer diagnosis and generalized debilitation. They both had (almost) full mental capacity and both died at home, without hospice.
In the year or so prior to their deaths, my parents asked me to assist with the financial side of their lives. Doing so, they volunteered information about their finances as well as information regarding bill payment, banking etc… Fortunately, they were financially stable.
Please note, these financial discussions are not meant to replace the other serious discussions that need to be addressed regarding medical care options, living arrangements and other necessary conversations.
Although the information they had shared was quite helpful, I learned through the school of ‘hard knocks’ that I had missed a lot of information which could have made my job as executor of their estate a lot easier. I will try to list several of the things I wished I had known that would have eased the experience.
DISCLAIMER: I am not an attorney, financial planner, accountant, stock-broker, etc… Please speak with a professional if you have questions.
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1 Don’t Wait Until it’s Too Late
If possible, speak with your parents while they are still healthy, to let them know you can assist with their finances as they grow older. It is difficult to have these discussions when they are under stress or hospitalized or otherwise incapacitated.
It is very important to know the name of their attorney, accountant, insurance agents and what funeral home and cemetery they would like to use when the time comes.
If they are absolutely opposed to sharing financial information, perhaps they can write a list of financial accounts (and account passwords) and place in a sealed envelope. This is not a great plan, but it is better than nothing!
2. Take Inventory of Assets and Ongoing Liabilities
Assuming they are ok with number one, try to get a list of their financial holdings (Bank account, brokerage, retirement, and real estate holdings). In addition, you will need to get a list of what bills are paid on a monthly/annual basis and how are they paid (autopay vs writing a physical check).
A partial list would include credit cards, insurance, memberships, car payments, magazine subscriptions, and utilities. This will be quite helpful if they become incapacitated.
3. Become a Co-Signer or Trusted Contact
It would be helpful if your parents would allow you to be a co-signer on their bank account and safety deposit box. They might feel uncomfortable but my parents were actually relieved that I asked.
If they don’t feel comfortable having you as a cosigner, than you could ask to be listed as a ‘trusted contact’ so the financial institution could contact you if there is unusual activity. Many elderly have fallen for the ‘fake federal warrant” or “Grandma, I need bail in Podunk, Utah” scams.
4. Locate Key Documents and Information
Determine the location for their important financial documents including wills, advanced directions (DNR), power of attorney, life insurance, burial policies, cemetery information, safety deposit keys, and cash ‘hidden’ in the house.
Ensure your parents have listed beneficiaries of their IRA and other retirement plans. More on this in number seven.
5. Any Special Requests?
Inquire whether your parents have any sort of special gifts they want to be distributed following their death. Examples might include jewelry, china, coin collections, antique firearms, silverware, or other family heirlooms.
If they want these to be distributed to specific people, a list should be prepared. Sometimes there can be heated discussions over ‘who gets the diamond earrings’.
[PoF: A formal will can spell these requests out, but a written document of any kind is better than nothing.]
6. Funeral Proceedings
Following the funeral, which was hopefully paid for by either a burial policy or writing a check on their banking account. If you were a co-signer, is a difficult time.
You had the sadness of dealing with their passing as well as the nuts and bolts of writing thank you notes to friends who made contributions or assisted in other ways, cleaning and selling their house, settling debts and getting their will through probate.
7. Probate and inheritance
Assuming your parents had a will, most assets will have to go through the estate following probate of their will. Some of the assets that don’t go through probate include; bank accounts that are titled ‘Pay on death’, life insurance beneficiaries, and brokerage/ IRA accounts with beneficiaries listed will go directly to the individual listed.
For IRA accounts, if a beneficiary is listed, the required minimal distribution (RMD) will be based on the beneficiary’s life expectancy. This will allow the IRA to have lower RMD as compared to an IRA that doesn’t have beneficiaries listed.
[PoF: This could soon change if the SECURE Act is passed into legislation, which appears likely. An inherited IRA would be distributed to the heir over a 10-year timeframe rather than a lifetime. Phil Demuth has had a lot to say about the implications of this.]
If an IRA has no beneficiaries listed, this IRA will go through probate and will be divided per the will. Each inheritor of this IRA will have RMD based on the deceased’s life expectancy. This will require a much larger percentage distribution compared to the first example.
An RMD must be taken starting the year after the death or a large penalty is applied. There are other rules regarding inherited IRAs that are beyond the level of this discussion. On a separate note, the cost basis for inherited assets, such as real estate or stocks in non-retirement accounts, is the value of the asset on the date of the deceased person’s death.
[PoF: Establishing a revocable trust and titling assets under the trust can avoid many probate headaches.]
8. Establish a Checking Account for the Estate
Following probating the will, it is quite helpful to establish an “Estate of” checking account to handle any sort of income or expenses that arrives following their death. You will need to have a death certificate as well as letters Testamentary to set up the account.
You might also need to establish an employer ID number (EIN) prior to this in order to avoid using the deceased social security number.
Following distribution of the estate to the heirs, it is important to keep some funds in the “Estate of” checking account to ensure there is money to pay for court, attorney, accountant fees, and final tax filing for the estate.
Caring for one’s parents is a difficult task but with some planning, their passing can be made somewhat easier. The key things to remember include communicating well with your folks, ensuring they have a will, listing you as a co-signer on their checking account and knowing their wishes for site of burial, IRA beneficiaries, and charitable contributions.
Thanks for reading, I hope this is helpful to the readers of PoF and perhaps gives them something to think about when they have to have these discussions with THEIR children. I would love to hear additional comments from the readers of this post.
[PoF: Thanks again for sharing these helpful tips. I’m sure you wish you had an outline to work from as you navigated these end-of-life financial issues for your parents and their estate.
One resource that can be particularly helpful (in addition to a will and revocable trust) is the In Case of Emergency Binder, a.k.a. Legacy Binder. I’ve got a copy, as do my parents. When completely filled out, you will have many important details spelled out, including:
- Investment accounts and passwords
- Investing strategy (preferably an Investor Policy Statement)
- Social Media accounts and passwords
- Email accounts and passwords
- Copies of Personal Documents (Social Security, Birth Certificate, Marriage License)
- Extended Family Contact Info
- Medical Information (doctors, insurance, POA)
- Child care preferences
- Pet care
- Insurance Policies
- Property Information
- Tax Information
If you’re traveling this holiday season, I wish you safe travels. Give your family members an extra hug for me, and if you choose to have “the talk,” I hope it is well-received. I know it will be well-intentioned.]