How to Talk to Your Parents About the Estate Tax
When 2010 ends, the estate tax will return. Talking about it could save your family a huge tax bill
Bringing up the estate tax with your aging parents can be as awkward as inquiring after their sex life --or worse, because it could imply that you are chiefly interested in your inheritance. But making sure that they understand the current complexities of the law will help their money end up where they want it.
Talking about estate taxes is especially important right now, since the federal estate tax doesn't exist this year because of a legal quirk. Next year it's back, with an exemption of only
Bringing up the topic isn't easy. Adult children often fear appearing like money-grubbing kids, while older adults prefer to avoid the topic altogether. Here's some advice from two experts:
Don't be afraid to talk about it. As older adults increasingly turn to their children for help managing their finances, Armstrong says she sees more frankness concerning difficult money topics. One of her clients who is in his 80s delegates his financial affairs to his daughter, who told him that if they don't take action, a lot of his money will unnecessarily go toward taxes when he dies. That kind of logical approach can work best, Armstrong says.
Use a celebrity as a conversation starter. Jacobs suggests bringing up the recent death of a celebrity, such as
You can also use yourself as an example to broach the topic. If you just updated your wills, mention to your parents how you did it. You can say something along the lines of, "It's amazing than in 2011, a young couple like us needs to be concerned about the estate tax," she says. That gives parents an opening to discuss their concerns. Giving them a financial planning book or article can also get the conversation going.
Table the issue if your parents don't want to discuss it. "If they don't want to talk about money, then you need to drop it and accept that this is not something you should pursue," says Jacobs. Some parents who grew up during or before World War II look forward to paying taxes, she says, and feel it's irresponsible to try to minimize them.
The main question, says Jacobs, is, "Can you have this conversation without damaging your relationship?" Because ultimately, it's the memory of the relationship that lasts, and the money is far less important. "If you have tense times towards the end of your parents' life because you're talking about estate planning, it will stay with you forever, and it's just not worth it," she says.
Acknowledge the uncertainty of the situation. Even financial planners admit that they don't know what's going to happen. No one knows whether
Talk about different options-not just giving you more money now. It's true that one of the easiest ways to reduce a taxable estate is to give money away early, before death. But not everyone can afford to do that, especially considering that no one knows how long he or she will live. That's why Armstrong only recommends this strategy to people with significant (
Emphasize the importance of financial stability. "Everybody's worried about outliving their money," says Armstrong. The No. 1 goal is to ensure that aging parents can support themselves. Starting the conversation that way can keep the focus on that priority. "Say, 'I wonder if we should go over your finances together. I want to make sure you have enough money,'" she says.
Suggest some simple steps. For people with estates large enough to be subject to the estate tax (next year, anything over
Remember that it's not your money. In the current tough economic climate, adult children might be tempted to look longingly at their parents' cash and think how great it would be to have it as a cushion to support their own lives. But Jacobs says it's important for adult children to remind themselves that it's their parents' money, not theirs. Jacobs says it might help to emphasize that if it were up to you, you'd want your parents to live it up and spend every last dime of their money while they're still living. "Be sure to get across the point that you don't have designs on their money," she says.
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