Parents are often uncomfortable to talk to their adult children about personal matters. This post identifies some of the benefits of that kind of conversation.
This post deals with talking to your adult children about your investments and more generally about your goals and plans. My wife and I first did this some years ago, when I decided to graduate from full-time work. Most retirees find, after time passes, that it’s useful to repeat the exercise, as circumstances change and nothing ever works out quite how you projected. It then could become the year’s most important focal point. (Memo to myself …)
I realize that some families (particularly in generations past) have found it very difficult to discuss any aspect at all of this phase of life with their adult children. Neither my wife nor I ever had such a conversation with our parents.
Our first effort with our own children has gone down in family history as Dad’s Decumulation Talk. Yes, as you might guess, I did most of the talking. Just before we started my wife, without saying a word, placed a cartoon in front of me. (It’s by Matthew Diffee, from the New Yorker of January 28, 2002.) It has become a family favorite. There’s a family sitting around a kitchen table; the youngest one’s head barely comes above the table. And Dad is saying: “Before we begin this family meeting, how about we go around and say our names and a little something about ourselves.”
I got the message: “Remember you’re their father, not a businessman.” I’m told I conducted myself appropriately. It turned out that this became a real bonding experience in the family, and one of the consequences is that we’ve been able to discuss financial matters with our children, our matters and theirs, ever since.
At the time I gave them a document entitled “Goals and Plans,” which we prepared in order to give them enough background that, if and when the need arose, they could be confident about making decisions for us. If it’s any help, I’m including an outline of what our document contained as an appendix at the end of this post, as a number of clients asked for it when I mentioned it in a talk a few months after I graduated from full-time work.
Since then I’ve done some research and discovered a lot of useful information. I’ll set out some of it here; but of course you’ll understand that this is simply meant as educational background, not to be a comprehensive list, and that there’s no substitute for talking to your legal and financial professionals. And also that, when I refer to your adult children or other close family members, that’s a generic way of saying “whoever it is that you’d like to have take charge of your affairs, during or after your lifetime” — and that might perhaps be a professional or a financial institution, not just a family member.
I’ve found it helpful to think of three dimensions regarding the information to be shared.
The first is a list of important documents and where they are to be found (preferably in one place, known to your children). This includes government-issued documents relating to your identity (birth, marriage, citizenship, whatever). Also include information regarding assets and liabilities, such as home ownership, cars, bank accounts, savings bonds, credit cards, life insurance, savings plans related to work or retirement, other invested assets, other miscellaneous things you own – that sort of thing. Of course there are also important legal documents under this heading, such as your will, a power of attorney, and advance directives, like a living will, medical power of attorney, end-of-life instructions, and so on. (There are many flavors of these and they have different names in different countries.) And people they should contact, and their contact details: not just professionals like your doctor, your lawyer, your financial professional, but also close friends and relatives.
One side issue, relating to wills. It’s often said that many people die without a will. My father-in-law, who was in the insurance business, taught me that everybody already has a will. A will is a document that says what will happen to your estate after you’re gone. The law says what will happen, if you haven’t written your own document. So think of the law as your will. You do have a will, no matter what you think – it just may be that somebody else wrote it for you. Better to override it with your own wishes!
The second dimension relates to levels of involvement. (I found this at Anderson Elder Law, in an article in their Resources section dated March 24, 2015.) The least involved level is where your children know where to find the information mentioned earlier. Next, you may want to share some of the actual information with them, such as your finances and your will. (As you can see from my anecdote at the start, my wife and I decided to start here.) Once you start doing this, you will probably want to repeat the exercise periodically, as we now plan to do. At this stage you’re still in full control. It may later become necessary for them to assist you, or to share responsibility for your affairs, or to take over that responsibility completely.
A friend who is going through her own parents’ late phase of life reminds me that, in that phase, the relationship between parents and children can change completely. The parents need the children, rather than the other way around. The parents can become fragile and susceptible, and easy to be taken advantage of. The children worry about the parents, and have to soothe them. My friend adds, feelingly: “I don’t know what I’d do if I couldn’t trust someone to take care of me …”
No doubt, therefore, you will have consulted your children before making the required arrangements, and got their agreement to whatever goes into the relevant documents. And you’ll have given them a list of the medications you take, and ensured that your professionals know they should consult your children and also know where to find them. It can provide great peace of mind to know that all of this has been discussed before the need for the arrangements to be carried out ever arises – even if one day you may not remember ever having done this.
It’s peace of mind not only for you but also for your children, who may be worried about whether they’ll have to support you financially at the end. For your children’s sake, don’t leave this conversation so late that your mental capacity is declining and you still haven’t had the conversation.
And that leads to the third dimension, which involves saving trouble for your executor after your estate event. (I was amused to discover that American insurance agents don’t like talking about death. Instead, because of the potential for estate duty – called inheritance tax in the UK, even though it’s not the inheritor but the estate that is liable – they refer euphemistically to your “estate event.”) Some wills are hotly contested by family members who can’t stand one another. If that’s the family attitude, you may not be able to solve this problem while you’re alive. The angst that it may be possible for you to spare your executor arises from the small things, like dividing up your personal possessions, when different family members each want the same thing, or think that a particular apportionment or process of deciding is unfair. I refer you to an article I particularly liked on the subject, by Paul Sullivan (in his Wealth Matters column in The New York Times on April 15, 2016). A quote from the piece: “… just think for a second what it would be like on Christmas morning if your children ran downstairs and there were all of these presents, bright and shining, big and small, but with no name tags on them. Can you imagine the free-for-all that would ensue?”
That got to me, and that’s why I include it here, even though it probably won’t make any list of really important financial things to consider. But emotional things? Yes indeed! And those are important too.
Share information with your adult children: about your current finances, about your desires if you should become incapacitated, and about your will.
APPENDIX: OUTLINE OF THE FIRST EZRA “GOALS AND PLANS” DOCUMENT
- Introduction: Purpose, summary, appreciation of good fortune, request for intervention if and when required
- For ourselves: continuation of lifestyle
- For our beneficiaries: during our lives, and after our second estate event
- What we’ve done, financially, over the years, and why
- Our assets and liabilities, their current values and details of where they are located
- Our lifestyle and other outflows
- The normal budget for our spending and saving
- Exceptional planned expenditures
- Life insurance, long term care, other partial hedges against the vicissitudes of life
- Lifestyle versus assets
- Latest “personal funded ratio” calculations (I’ll post information about how to calculate these in 2018)
- Dials to be turned, if things go wrong: why, and how much
- Caution: transition means this isn’t carved in stone
- Contact details for our financial professional
- Current and future plans: what, when and how long
- Real estate: downsize, move, perhaps rent, perhaps one day a reverse mortgage
- Reassess every year, with a big review every 5 years starting at my age 70
- When to start taking Social Security (that is, the Pillar 1 pension), and why
- Rearrange the assets at age 70: laddered bonds, equities, deferred annuity; why (much of Topic 4 will be devoted to this)
- Where there are still elements of flexibility
- Reminder of the life abundance portfolio as a framework: family and friends, work and play, mental and physical health, finances
I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.