Have you had the talk yet? No, not “that talk”. To mix a metaphor, the birds and the bees are already out of the barn at this point! No, this talk is about your financial plan. With the holidays approaching, you may want to consider using this time to enter this conversation. Below are some practical tips you can use to get the conversation started.
1. Don’t Make It Awkward
Appropriate communication of your financial picture is very much a part of a successful financial plan. After all, it is likely that family members will be the recipients of your estate someday. They may even be called upon to help manage your finances should the need arise. It can be a little intimidating for someone thrust into that position without any prior knowledge. Remember to keep calm and have patience. After all this involves money, family, and the future. All the makings of a soap opera! If it helps, have an outline or topic list prepared.
Thanksgiving is a time when families traditionally get together and celebrate the holiday. While spending time with family often involves eating/drinking, and watching football (and the occasional nap if you’re lucky), it also may be a great time to discuss family finances at some point over the extended weekend together. After all, how many times can you rave about those sweet potatoes?
2. Start With the Basics
A good place to start with family is to simply let them know that you have a plan and who is helping you. It is also a good idea to provide a list of key contacts. Explain each person’s role in helping you. At Carnegie, we often include family members in meetings and welcome their involvement when appropriate.
Here are some basics you may want to cover:
- Our Financial Planner and Investment Adviser is (Fiduciary Name). We work with (Advisor Name.) We receive periodic updates on our portfolio and we keep them apprised of changes in our lives as well.
- We updated our estate plan recently with the help of (Estate Planning Service Provider.) Some of you play a role in our estate plan. Before you get too excited, we have also hired a food taster!
- Do you have any questions or concerns?
- Have you done any planning yourselves? Who are you working with?
There is a time and a place to delve into more specifics. For an initial conversation, you may just want to stick to the basics to start the process. As time passes, you may find you will have more reliance on family members to help you with your finances. In general, the earlier the better for introducing key family members to your advisors. There are strict privacy rules that limit what can be communicated even to family members. With some simple planning techniques, we can help you clear these hurdles.
3. Outline Retirement Goals
Does your family understand what you hope to accomplish in retirement? Perhaps you want to travel the world; volunteer at your favorite charity; or simply spend more time with family and friends.
Outlining your goals can lead to a discussion of your financial preparedness. For example, “This is what we plan to do and we have built it into our cash flow planning.” It might go a long way to alleviate any concern a child who may think Mom/Dad are spending too much.
This conversation also extends to long-term care planning needs. No one wants to spend time in a nursing care facility. These choices can be some of the most difficult to come to grips with as a family since it affects everyone. Start the conversation now even if the potential reality is a long time from today.
4. Clarify Roles for Family
In putting together an estate plan, clients often name children to carry out key roles such as Trustee, Power of Attorney, and Health Care Power of Attorney. In situations where there are young kids, you name custodians who are responsible to raise the little buggers. It is critical people know and understand their roles before they are thrust into them unexpectedly.
Common roles that family will often fulfill in estate situations include the following:
- Executor: Person charged with administering your estate. Pick wisely.
- Power of Attorney – Financial: A POA for financial decisions means that someone has the full power to make financial transactions on your behalf. Again, pick wisely.
- Power of Attorney – Health Care: The Health Care POA gives someone the authority to make health care decisions for you in the event you are unable to do so yourself.
- Custodian: If you have minor children, you will need to name someone that will help raise your kids if the need arose. This is where it gets fun! Given the level of responsibility and commitment associated with this role, it is important to make sure everyone is onboard.
5. Turn the Tables & Ask Your Kids
Communication is a two way street. Don’t forget to ask your adult children about their plans. A client recently asked how much money they should contribute to their grandchildren’s college fund. When we asked how much the parent’s had already saved, there was a need to find out more. The answer might impact how much they contribute, timing of the gift, and the form it will take.
You can’t expect the next generation to think about finances the same way you have during your life. The costs of college and raising kids in general have changed dramatically. Jobs and related benefits are less secure. What hasn’t changed, however, is the need for a plan. In fact, now more than ever kids need a plan since they are required to secure their retirement more than ever before. Encourage them to start sooner rather than later.
6. Ask for Help
Talking about family finances is not easy. It is why most families avoid the topic all together. It does not have to be uncomfortable. The value of sharing information far outweighs the potential risk caused by not communicating. Do not be intimated by a perceived “lack of knowledge” about financial topics. You don’t have to be a Wall Street pro since this conversation is about you and your goals.
One of your best resources is your current financial planner. If they are doing their jobs properly, they should be the most knowledgeable about your situation and be able to articulate the structure of your financial plan and answer questions.
Now that you are armed with a plan, good luck! You’ll do great!
Image courteous of Akward Family Photos: http://awkwardfamilyphotos.com/2014/11/07/44-awkward-thanksgiving-pics/
