Are you going to get a pension? Will you act as a paid consultant? Does the child who has never been involved inherit a share, get part of the profits and have a say in a business? Or does the result of your life’s work go entirely to the two involved in the business, perhaps causing family friction?
You want to be fair. But what is fair?
Your children have a distinct interest in these aspects of retirement planning, says Daniel Overbeck, an attorney with Pettig, Overbeck & Reid, and chairman of the estate and trust section of the Monroe County Bar Association.
“(They) ought to be involved in the process,” he says, preferably with separate counsel.
Says William Watson, a clinical psychologist and director of the Family and Marriage Clinic of the University of Rochester Medial Center: “It’s not commonly done … (but) it’s important to talk to adult children about your plans for retirement and your wishes in the event of incapacity and death.”
For example, many retirement financial considerations affect your children. Perhaps you intend to give substantial gifts to your children or grandchildren during your lifetime: financing glorious family vacations, helping with the down payment on a house, paying for a master’s degree.
Parents often want to see their children enjoy this supplemental income rather than leave it to them through inheritance, says Nannette Nocon, a certified financial planner with American Express Financial Advisors.
She says children need to know about any such plans in order to coordinate their own plans.
Another caution: Be sure to leave yourself enough money. Once you’ve made a gift, “it’s not yours anymore. You can’t take it back,” Overbeck says. Take note, too, of rules governing the amount you can give to any one person, and of tax consequences.
Further, large gifts to charity might use assets children view as part of their inheritance, Nocon says.
“Mention it so it doesn’t come as a big surprise.”
Watson says if the opposite is true–if you think you might run out of money in 10 to 15 years–you also should tell your children. It is important to get their input early, he says, “so they have a sense of responsibility, of ownership (of the problem.)”
Otherwise, if you need their help they could be upset and resentful. They may ask, “”Why didn’t you do thus-and- so?”’ he says.
Decisions about retirement benefits also are key, experts say. Should you take a lump sum payout? Monthly distribution that will continue after your death or bigger payments that will end when you die? Who is your beneficiary? What tax consequences are involved?
Parents should talk to a CPA or attorney and understand what (approach) is best for them, but they don’t necessarily have to discuss it with their children, Overbeck says.
“It’s their own personal call,” he says.
That is true of most retirement and estate planning, he adds. Usually no laws require involving one’s children in the planning. Clients often want to have their children included in discussions, he says, “but I can’t say you should. It depends on each family’s circumstances.”
Some parents, especially older ones, want to arrange a joint checking account with one of their children. They want somebody to have access to be sure bills will be paid if they become incapacitated or their memory fails.
That approach has some risk, Nocon says. If your child is sued or goes bankrupt, your assets could be lost to a creditor.
A joint account gives ownership to all those who are involved, Overbeck warns. An unscrupulous joint owner “could legally clean out the account and go off to Tahiti.”
Moreover, when the parent dies, the money in the account belongs to the other person and not the estate. Overbeck tells of a case in which a suit had to be started against daughter number two–who had a joint bank account with her mother–in order to force her to divvy up the money among her siblings as Mother’s will directed.
One approach is to give power of attorney to one or more persons. That party can sign checks and pay bills but does not own the money in the account. Yes, he or she could still clean out the account, he says, but now you would have legal recourse.
If granting power of attorney to one or more children, discuss it with them, Nocon advises. Designate someone who is knowledgeable and financially responsible. Keep the document in a safe place, typically a lawyer’s office.
Charitable remainder trusts and living trusts are other aspects of estate planning that can involve your children. They are technical legal instruments that require expert advice.
Not all retirement planning involving your children focuses on financial matters.
A health care proxy is one such issue. This proxy gives a designated person the power to make health care decisions for you if you are incapacitated, but does not lay out what those decisions should be.
Therefore, Nocon says, whether you have designated a child or somebody else you should be sure the person knows your wishes about life support.
A living will, a non-legal document that outlines your wishes, can help guide your designee, Overbeck says.
Another topic that would be well to cover in discussions with your children is the location of your will. And you probably should tell the person you have chosen as executor.
“It’s a big responsibility,” Nocon says. Naming a child who lives out of town or one with small children, for example, could cause problems. Maybe another sibling would be a better choice.
Some parents choose a bank as executor because they don’t want to saddle a child with the responsibility, or don’t want to give him or her an opportunity to lord it over the other children, says Overbeck.
The location of documents is important, too. Among them: birth certificate; Social Security card; marriage certificate; assets, including bank accounts, stocks and bonds; and pension benefits.
Experts also suggest listing the names of your lawyer, banker, broker and other key advisors.
List household possessions, too, Watson suggests. If something is on loan from Uncle Harry, say so.
Organize files, Nocon says. Most people keep more paperwork than they need, which makes finding the germane documents difficult. She suggests getting rid of such items as outdated insurance policies, statements about certificates of deposit that have matured, and paperwork from checking and savings accounts that no longer exist.
You also might want to discuss with your children any lifestyle changes you plan for your retirement. Do you plan to move to Florida or North Carolina? Sell the family home and buy a condominium?
Your children should know where you want to live if you need long-term care: with a family member, at home with help, in a nursing home, in a community- care center?
Many parents may feel uncomfortable discussing some or all of these matters with their children. Some retain a parent-child mindset that makes it hard to see their children as capable adults, Watson says. They don’t want to burden the children with their problems or bore them with in-depth discussions about the next 10 or 20 years.
Privacy issues are involved. Such discussions raise the consideration of incapacity and death, eventualities many people wish to avoid thinking about.
Watson recommends that parent-child discussions about retirement be an ongoing process rather than a one-time meeting. Plans change and evolve as time goes by, he says.
Continuing discussions through the years can strengthen family relationships, he adds. They can result in parents “having a more healthy view of their children as responsible adults, a greater appreciation of their strengths and assets as individuals.”
Also, he says, involving children in retirement plans can be a very useful time of reviewing family history and the threads that bind generations. You can look at your children, admire characteristics you value, and connect those characteristics to values you got from your parents.
“You can see the things you value being passed from generation to generation,” he says.
(Ann Fox is a Rochester-area free-lance writer.)