According to financial expert Andy Smith, many baby boomers are learning the ins and outs of estate planning first hand, as they cope with the problems associated with settling their parents estates.
Smith, Senior VP of Financial Planning at Financial Engines, and host of call-in radio program, Investing Sense, has advice for baby boomers: “Look at your parent’s plan and where it was lacking and use your experience to fix your own estate plans.”
Learn from these estate planning lessons which focus on wills, funerals and health care expenses.
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The long-term ramifications of not having a will are monumental. Without a will, your assets go to probate and although it varies by state that can leave your family with huge tax bills that eat away at your wealth. According to Smith, many people don’t have a will, although they realize they should.
“I hear more often that ‘I really need to do this,’ than, ‘Here is my updated will,'” he says.
In fact, an article by Forbes suggests that 51% of Americans aged 55-64 and 62% aged 45-54 don’t have wills. More men than women have thought about estate planning — 67% of women in these age groups don’t have a will.
Taking a look at these statistics, it’s not surprising that many baby boomers have been left to deal with an estate that has no will. The good news is that dealing with their own parents lack of planning has encouraged many to take the time to invest in leaving their own children better prepared.
No will is a problem, but an out-dated will can also cause schisms within a family. For anyone who has been divorced or recently widowed and has remarried it’s critical that the will reflect these changes in family dynamics. Imagine the trouble that it would cause your family if your estate was left to an ex-spouse.
Baby boomers whose own parent’s funds were tied up in probate or otherwise inaccessible for funeral planning, know first hand the stress and financial burden that unpaid funeral expenses can cause. Theoretically an entire inherited estate can be used to pay for funeral expenses, but in reality you need liquid assets for the funeral. Not all baby boomers can front the money needed to pay for their parent’s funeral costs and don’t want to put this financial burden on their own children.
For this reason, more and more baby boomers are choosing to pre-pay for their funerals or to set up an account that “has been previously designated to use for funeral expenses,” Smith explains. According to US News, approximately 23% of people over the age of 50 have prepaid for at least a portion of funeral or burial expenses for themselves or someone else.
Unexpected healthcare costs can derail any retirement plan. Baby boomers need to have early conversations to see whether their parents have included health care costs in their retirement planning — and baby boomers shouldn’t neglect health care costs in their own retirement plans.
Most Americans don’t plan for medical or health care costs in retirement and don’t realize that the typical health care costs for an average couple over the age of 61 is $241,000.
“People never put these expenses into their long-term retirement planning. Know your health care costs and fit them into your long-term strategy,” Smith warns.
To plan for health care expenses you first need to get a sense of:
If there are health concerns now make sure you plan for them long-term. If everyone is healthy it may be smart to delve into family history to see whether heart disease, diabetes, dementia, cancer or other hereditary illnesses run in the family and then plan accordingly.
Baby boomers are learning from their parents that it’s important to plan for the worst and hope for the best. “If you have to [gather this information] during a time of crisis it is stressful. Find out when they are healthy. Get everyone in the same room and talk,” Smith suggests.
If you’ve had to cope with the loss of a parent, then you know the importance of strong estate planning and the benefits to surviving family members. In particular, consider wills, funeral expenses and health care costs. The bright side is that baby boomers whose own parents have left them with a poorly planned estate are able to take their experience to heart and implement better planning for themselves.
Have you had to deal with your parent’s poor estate planning? Share your experience with us in the comments below.