Summary: “I’m not only the Heir Club president, I’m also a client.” “Finding the right heir loss solution is an important decision that can accentuate your lifestyle in unimaginable ways. But one size does not fit all heir loss cases.” Estate taxes, medical expenses, jealous siblings, legal fees, or other avoidable problems might infringe on, or even eliminate, your anticipated inheritance. The solution should be as individual as you are. We’ll use the title “parent” and “kid” to simplify the discussion, but the concepts applies to many relationships of benefactors and beneficiaries.
Your active participation not only can maximize your inheritance, but can provide tremendous assistance to your parents or other family member or benefactor. Too often, poor planning dissipates money. Although the proposition may offend some people’s sensibilities, you should not feel guilty about planning to maximize your inheritance. Invariably, inadequate planning results in spending significant sums of money on unwarranted legal fees, professional fees, medical costs, and so on. Done properly, maximizing your inheritance will not harm your parents or other benefactors. Rather, it will safeguard their own interests and ensure that asset distribution after their death will reflect their true intent.
Open a Dialogue.
To inherit more, your first step should be to open a dialogue with your parents (aunt, uncle, or other prospective benefactor). Since much of the planning depends on cooperation from your benefactor, without a dialogue there is often little you can do to maximize your inheritance. ◙ You could discuss strategies that might give your parents comfort in later years, ways to assure their financial security, your own estate planning, charitable giving, or religious issues. Pick the most feasible approach, move slowly, and be sensitive. ◙ Focus on how you can help protect your parents. Has an overly aggressive stockbroker undermined your parents’ financial security? Once you are actively talking about your planning, it may become a simple matter to segue from a discussion of your living will to a discussion of theirs. You need only to ask if they agree with your decisions and if they are in any way similar to the decisions your parents made when drawing up their living wills.
◙ The classic 2nd marriage estate-planning approach uses trusts to provide for the new spouse while protecting assets to ultimately be distributed to children from a prior marriage. Typical estate tax bypass and marital (qualified terminable interest property, or QTIP) trusts can accomplish these goals. There are a myriad other variations and options. ◙ A life estate is common. Mom let’s her new husband live in the house for life, but then the house reverts to you and your siblings. Sounds great and seems simple, but it’s not. Although it’s common and inexpensive, it’s not always the best option when you want to maximize your inheritance. Too many ambiguities and issues are left unsettled when implementing a standard life estate. What if the house needs a new roof? What if the new husband moves into a nursing home? ◙ Prenuptial (spouse) or living together (partner) agreements are vital to protecting assets from the new spouse/partner. If dad uses trusts in his will to protect your inheritance, that might be nice, but it may prove academic if his new partner/spouse spends or takes all the assets before his death. Get dad to consider entering into a prenuptial (or postnuptial) or living together contract with his new spouse/partner to minimize the likelihood of legal and financial entanglements if the relationship terminates. ◙ A spousal right of election can be important in determining the ultimate distribution of any decedent’s assets. This is a right under state law for a surviving spouse to take a specified minimum percentage of the deceased spouse’s estate no matter what the will said. Unless your parent has planned to address this, or had the new spouse waive it, you might loose a large chunk of your inheritance.
A conversation about QTIPs may prove irrelevant if key assets are lost to fire or theft. Insurance means more than life insurance. ◙ Life insurance could be essential to protect your parents’ assets by providing for a new spouse, paying estate taxes, or providing liquidity to ride out a downturn in the market before you have to sell. It can be the toupee of planning – covering up for assets bequeathed elsewhere. ◙ A house without fire and casualty insurance may be a total loss in the event of such a calamity. ◙ A theft can be devastating to the financial worth of a parent who has never insured valuable art, coins, or other collectibles, or has insurance that is based on an assessment made 30 years ago. ◙ Elderly parents who have no nursing home or long-term care insurance may deplete their assets to the point that their children must help support them.
◙ Consolidation of a parent’s financial assets is a simple, no-cost, step to help your parent achieve important financial goals: control over her finances, safety through better investment planning, simplicity so she can follow the accounts and transactions, etc. Consolidation minimizes probate expenses and delays. ◙ Fewer accounts makes it much easier to maintain an investment allocation consistent with your parent’s risk profile. ◙ Budget is not a 4 letter word. Proper investment decisions require an analysis of financial needs, time frames, and expenses. Who is helping your parents make these decisions? Proper investment and budget planning will assure that your parents’ wealth will, to the extent feasible, last them throughout her lifetime. ◙ Longer life spans mean investment and spending have to consider the real time frame. The average woman will live 22+ years in retirement. In 1950, the figure was only 14 years. That is 8 more years to risk running out of money and to exhaust your inheritance. The only way to assure your parent adequate resources for her retirement years is to put in place an optimal investment strategy. And the real issue is that the preceding figures are averages. An average means a lot of people will live a lot longer in retirement than 22 years. So unlike a popular book about dying broke, your advice to your parents should be to focus on saving and spending so that their money will last to say 95%+ of their life expectancy. ◙ Investment policy statements (IPS) are an essential tool. If your parent hired a professional to manage her money, she should have signed an IPS that clearly identifies heir investment goals and objectives.
Theft and Loss
Theft or loss of valuables is not uncommon. 50% of those over age 85 have some cognitive impairment. ◙ As parents age, the likelihood increases of home health aide walking off with a coin collection and a piece of jewelry inadvertently ending up in the trash. Take steps to account, insure and protect personal property. Move small valuables that are not needed to a safe deposit box. ◙ If a parent dies, secure their residence (change locks and alarm codes or install an alarm if none existed). ◙ If a parent loans family or friends money, encourage them to have a note signed documenting that the advance was a loan and not a gift. Many borrowers seem to have selected memory about the nature of the transaction when questioned at a later date.
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