For many Americans, the pandemic has brought to light the importance of legacy planning. A recent study conducted by financial services firm Edward Jones found that a third of U.S. adults report that the pandemic sparked conversations with close family members about their end-of-life plans and preferences, and for 18% of Americans, these were first-time discussions.
Although these conversations can be uncomfortable — 18% reported being too uncomfortable to discuss these topics — they’re important to have so that you and your loved ones are on the same page about your plans for your later years and beyond. A fifth of those surveyed said they have avoided talking about end-of-life plans because they did not want to burden family members with their finances, but it’s not having these conversations that could cause your family members to deal with a large financial burden in the end.
Here’s what should be included in your plans for your later years and end-of-life to ensure your loved ones are financially prepared.
Create an Estate Plan
“There are many different factors to consider when developing an estate plan that best fits your unique needs,” said Alison Carnie, CFP, principal at Edward Jones. “First, work with your financial advisor to make a list of all of your assets including investment and retirement accounts (IRAs, 401(k) [plans], brokerage accounts); cash or checking/savings accounts; real estate; personal property (automobiles, boats, jewelry, artwork); insurance policies and annuity contracts.”
Next, determine what your priorities are. When it comes to the kind of legacy people want to leave to their families, nearly a third (32%) said leaving an inheritance is the most important thing.
“One of the easiest ways to make sure your assets go to the people you intend is to list them as beneficiaries,” Carnie said. “Ensure that the correct beneficiaries are named on your accounts and that these designations are consistent with your overall estate plan. Brokerage accounts don’t automatically include beneficiary designations, but you can complete a Transfer on Death agreement to identify the person to whom the assets should go.”
You should review your beneficiaries any time something major happens in your life, such as when you marry, divorce or have a child, Carnie said.
“If you don’t review your beneficiaries, your assets could be inherited by someone you no longer intend,” she said. “In addition to a primary beneficiary, it’s important to name a contingent beneficiary who would receive the assets if the primary beneficiary is unable. Your financial advisor can work with you and your estate planning attorney to review your accounts and identify your options.”
You may also consider setting up a trust.
“Consult with your legal and tax professionals and consider setting up a trust if you are concerned about estate taxes, avoiding probate, controlling the transfer of assets to heirs, leaving assets to spendthrift children, protecting assets during incapacitation, or eventually needing assistance with money management and paying bills,” Carnie said.
In Addition to a Will, Establish a Health Care Directive/Living Will and Durable Power of Attorney
All three of these documents are essential for your end-of-life planning, as they all have unique and vital purposes.
“A health care directive/living will specifies your wishes for the administering of life-prolonging procedures when you are no longer able to communicate them,” Carnie said. “A durable financial power of attorney allows you to give someone the authority to make financial decisions for you if you cannot make them yourself. A health care power of attorney gives someone the authority to make medical decisions for you if you are unable to make them yourself. A will ensures your assets are transferred according to your wishes and provides direction on the care of any minor children after your death.”
Despite a desire to have a complete end-of-life plan in place, many Americans do not have all three documents prepared.
“Our recent research showed an alarming gap between intention and action, with only 19% of U.S. adults age 50+ reporting having all three of these essential documents,” Carnie said. “Further, while 71% of Americans age 50+ believe having a will in place is the most important action to take before someone dies, only 49% actually have a will.”
If you are missing any of these three documents, seek out the proper professionals who can help you get them prepared.
“A financial advisor can help you understand the process, prioritize your goals and coordinate with the other members of your estate-strategy team,” Carnie said. “An attorney will review your estate options and draft legal documents. A tax professional or CPA will advise you on the tax implications of your strategies.”
Discuss Your Estate Plan With Your Family
Your family should also be included in your end-of-life planning, as they will be the ones to carry out your wishes.
“Introduce your family to your tax, financial and legal professionals now, so they can develop a relationship with them,” Carnie said. “If you’ve already made end-of-life arrangements, make sure your family has access to the documents and information, so they can ensure your wishes are carried out. The more your family knows about your preferences, the more comfortable they’ll be that they’re making the right decisions for you down the road.”
These conversations can be difficult, so you may want to include an objective third party, such as your financial advisor.
“Financial advisors can help facilitate these difficult discussions and reduce the stress and burden on loved ones during long-term and end-of-life planning,” Carnie said.
Create a Plan for Long-Term Care
In addition to planning for end-of-life, you should also make plans for what happens if you are no longer able to care for yourself. Ideally, a medical professional and your family will be involved in this planning.
“Discuss with your family and doctor where you’d like to receive medical care if you develop a serious illness,” Carnie said. “Would you like to stay at home? Or if that isn’t possible, is there a facility you prefer?”
Once you’ve figured out your preferences, be sure you have a plan in place to fund this plan.
“Work with your financial advisor to ensure you have financial strategies in place to help you achieve your long-term care goals,” Carnie said.
Currently, more than half of Americans 50+ (51%) do not have any long-term care plans in place.
“Not having plans for long-term care needs is an issue many people need to address, given more than half of all Americans will have moderate to severe long-term care needs in their lifetimes, according to the Center for Retirement Research at Boston College,” Carnie said. “These plans are particularly crucial for women, who, on average, live longer than men, and also have lower retirement savings, according to our study.”
Having a long-term care plan in place can help ease any financial stress or worries held by your children.
“53 million Americans wish their parents and in-laws did a better job of managing their money,” Carnie said. “Millennials are the most concerned about the solvency of their parents’ finances, with more than half (53%) worried that their parents and in-laws will become financially dependent on them one day, underscoring the need for transparent dialogue. Long-term care plans can be uncomfortable to discuss, but planning ahead can give family members time to prepare mentally and emotionally for these responsibilities, and ultimately help bring them peace of mind during a challenging time.”
Planning Is Key To Taking the Financial Burden Off Your Loved Ones
“The events of the past couple of years have underscored the importance of long-term and end-of-life planning, and caused many Americans to begin thinking about the legacy they want to leave,” Carnie said. “Without a plan, your estate could wind up in probate, causing your loved ones unnecessary hassle and stress. Financial advisors can help you create a strategy for your finances and, with the help of a legal professional, you can develop an estate plan that will reduce the stress and burden on your loved ones in the long run.”
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