Do you know what happens to your parents’ money and belongings when they pass away? Do you understand the details of their estate plan, the tax liabilities, do you even know where they keep their will?
- This is a guest blog post by our friends at altruWisdom
We get it. For many of us, having serious conversations with our parents can make us want to crawl into a hole and hide. It’s awkward, tedious and uncomfortable. A conversation about what happens when they pass away is probably the worst version of “the talk” imaginable.
We have put together a list of the top areas of discussion. Book some time with your parents, eat some good food, and get through this discussion. Rip off the band-aid. Trust us, it will be worth it.
Estate Planning: Estate planning means all of the decisions your parents make about the things they own (their assets) prior to passing away. It is planned in advance primarily to ensure their wishes are respected and that the assets are passed on in a manner that is financially and legally efficient. Estate planning has a lot of components, including wills, personal directives, tax planning and more. At the very least, you should know who the executor is, where the Will is located and what it states (if that is your parents’ wish). It helps to be aware of the high-level details of their full plan. If your parents are open to it, ask them to involve you in the process.
Insurance: If your parents have ever purchased any life insurance, it’s important that you know that it exists and where it can be found. Additionally, get to know the insurance advisor that is servicing the policy. For brownie points, it would be great for you to assess if the policy is in good standing, if it requires any servicing and if the agent servicing the policy is still actively working in the industry. If not, there is likely someone who has taken over.
Assets: The combination of all of your parents' assets will eventually form the inheritance, however, there are a few things to be aware of. If there are assets like real estate, or cash in “non-registered” accounts, they are subject to taxes upon death. This is because the government assumes they are sold from your parents to you, which triggers a bunch of taxes. Also, if you think you will just “take over” your parents’ home when they pass away, think again. Even if they own it with no mortgage on it, there are still taxes to pay that either need to come out of their money, insurance proceeds, or your own finances. If there is a mortgage on the property, you will have to qualify for it as well.
An estate lawyer and any tax professional will be able to help with this planning. Remember, registered accounts are accounts like an RESP or RRSP. They have special rules for how they can be closed up and/or rolled over to other family members.
Debt: Often when we think of inheritance, we don’t consider that we can also inherit debt. Ultimately, that debt needs to be paid off from the assets of the same estate. It’s common for the beneficiary (the individual who is “inheriting”) to be unaware of the financial state of the estate, especially the amount of debt.
Power of Attorney: An enduring power of attorney is a legal document that you sign to give one person, or more than one person, the authority to manage your money and property on your behalf, in the event you are no longer mentally capable. These days, with medical advancements, it is far more likely that your parents will be in a state of ill health before they pass away. Therefore, this document is critical.
Physical Belongings: Whether your parents are streamlined and organized, or more like the cast of an episode of Hoarders, at some point, most children will be faced with disposing of their parents' belongings. If there are special items to be passed on, it’s best to have open communication and plan it together. There have been too many families torn apart by arguments over inheritances, and trust us, it’s not worth it. Trust your parents to divide belongings fairly and use the principles below to guide your discussion.
The items listed above are just a few of the key topics that should be covered, but this subject matter is complex. Remember, your parents are likely just as nervous and uncomfortable as you are, especially when it comes to thinking about their own death. As a family, do your best to communicate the importance of everyone’s involvement.
While this topic does bring up your inheritance, we advise against using it as your main motivation. Your parents will need their funds to use during their lifetime and they may have their own plans for how to allocate them when they have passed away. They don’t owe you any explanations, so demanding them is the wrong way to go about it. It’s also important to be aware that different family members will have different expectations as well as emotions surrounding the topic. Sensitivity and empathy go a long way.
In our experience, three key principles make this process go smoothly:
Open communication with all stakeholders: As much as possible, try to keep everyone involved on the same page with the same level of information.
Engagement in the process: Remember, estate planning has a lot to do with your own future financial state, so it is a good idea to be engaged throughout the process, understand which steps are being taken and why. Don’t drag your heels when they ask you to join them at the lawyer’s office on a sunny Saturday afternoon!
Organization: It is very common to experience a lot of stress at the time of a parent passing, and this is increased when their documentation is in a disorganized state. The altruWisdom Filing Cabinet is your best friend here. If your parents don’t understand the magic of technology, help them out! It’s a gift to them, but ultimately, a gift to you too.
Our rule of thumb is: “expect nothing and accept everything”. It’s hard to live by, but it is the best path to peace! Money issues can get complicated within families, but they do not need to be painful. Model an attitude of cooperation, facilitation, and support and hope your other family members follow!