BOSTON — How prepared are American families when it comes to leaving a legacy and discussing estate plans with their loved ones? Perhaps less than they may think. According to findings from a recent Fidelity Investments® Family & Finance Study, while the vast majority (90 percent) of parents and their adult children say it's important to have frank conversations about estate plans and wills, all too often the discussions aren't taking place—or at least, in a meaningful way. In fact, while 70 percent of parents surveyed believe they've had detailed conversations with their children on the subject, more than one-half of their children claim this isn't the case.
"The study also reveals that more than two-thirds of adult children and their parents disagree about the appropriate time to initiate conversations about the parents' finances. When it comes to legacy planning, generally speaking, the sooner the better," said Kevin Ruth, Head of Wealth Planning and Personal Trust at Fidelity Investments. "Failing to have an estate plan in place can lead to significant family confusion once a beloved family member passes. Too often, it may result in costly mistakes or the wishes of a loved one's estate and legacy plans going unfulfilled."
Even in the simplest of family situations, conversations that do not occur frequently and in detail may result in fairly substantial family disagreements and disconnects. For example, the Fidelity study found that seven in 10 parents and their children had major misconceptions about the value of the parent's estate – and on average, children underestimated that value by $278,000. What's more, while eight in 10 parents believe their children know where to find important documents such as wills, power of attorney and healthcare proxies, only two-in-three children actually report possessing this knowledge.
The potential for confusion only becomes greater—and the need to start planning even more urgent—when one considers that the modern-day concept of family may include stepchildren, in-laws and former spouses. Furthermore, an estate plan provides protection for those left behind, which may be especially important for loved ones requiring special care. Without a will, the state laws where a person resides may determine how the property is distributed upon one's death, and this outcome may not be aligned with what was intended nor be appropriate for a specific situation.
A Sound Plan Offers Greater Peace of Mind and Helps Simplify the Complex
Regardless of one's net worth, passing on assets to the next generation may involve a multitude of complex issues. Having an estate plan in place may help simplify the entire process, by allowing you to accomplish a number of things, including the ability to:
Additionally, having a sound estate plan in place may help one avoid certain tax consequences. Without proper planning, an individual could end up unnecessarily paying certain Federal estate taxes, as well as, possibly, state estate and inheritance taxes. For retirement assets, a good estate plan may help an individual avoid accelerated withdrawals from an IRA—which would cause a spike to income taxes, as opposed to a Required Minimum Distribution (RMD) over an heir's life.
"No matter who you are or what your family portrait looks like, establishing an estate plan is your best bet to ensure your loved ones are taken care of in your absence," continued Ruth. "While it is human nature to avoid thinking about one's own mortality, leaving the next generation in good hands with the information they need to be successful can help build a stronger family foundation. It may also provide you with greater peace of mind and ensure your decisions and wishes are carried out exactly the way you want."
Tips for getting started
For those looking to plan for a family financial conversation around estate planning, Fidelity offers the following guidelines, based on numerous discussions held with families through the years:
- Determine what factors you need to consider in your estate plan: Do you have children? How large is your estate? Are there special circumstances, such as blended families or children with disabilities?
- Then, get organized: Although estate planning may seem like a lot of work, breaking it down into smaller, more manageable tasks can be tremendously helpful. Before you take action, understand the key topics that may arise as you address specific needs. A good understanding of the basics is critical.
- Find the best estate planning attorney for your needs: Identifying the right estate planning attorney is essential to creating the right plan. Important initial steps include searching for qualified individuals, interviewing them to assess whether they are a good fit and understanding their fees.
- Align your financial plan to your estate plan: Work with a financial consultant to review your estate plan, ensure your information is up to date and make sure your financial plan reflects your wishes. And keep in mind: most estate plans aren't "once and done," but evolve over time.
- Set-up a financial check-in: Schedule time with your family to discuss your wishes, expectations, and the roles you anticipate your children will play. These check-ins give your children the opportunity to ask the difficult, yet important questions that otherwise may not come up. You'll feel better about doing so, too: according to the study, 85 percent of parents who have had conversations with their children about will/estate planning matters reported feeling greater peace of mind.
Want More? Fidelity Offers Resources to Everyone and the New Fidelity Estate Planner for Customers
For additional information, Fidelity offers a comprehensive Estate Planning Overview for any questions people may have when starting as well as helpful Viewpoints articles, such as Do you need an estate plan? and How to find an estate planning attorney.
In addition, exclusively for Fidelity customers, the company has introduced the new Fidelity Estate Planner, an easy-to-use online service that helps organize your information and documents, get informed on estate planning topics and decisions you will need to make, and get connected to an estate planning attorney, with tips and guidance on how to find and work with the right attorney for you and your family.
About the Study
The third biennial Fidelity Investments® Family & Finance Study, previously known as the Fidelity Investment's Intra-Family Generational Finance Study, is unique in that it surveys parents and their adult children separately on a range of financial and retirement planning topics to identify their level of agreement. The study was conducted online among U.S. parents and their adult children during the period of February 26 – March 22, 2016 by GfK Public Affairs and Corporate Communication, using GfK's KnowledgePanel®. The total sample recruited for this study included 1,273 parents and 221 adult children. To qualify, parents had to be at least 55 years of age, have an adult child older than 25 and have investable assets of at least $100,000. Their children qualified if they were at least 25 years of age, had money saved in an IRA, 401(k) or other investment account.
About Fidelity Investments
Fidelity's mission is to inspire better futures and deliver better outcomes for the customers and businesses we serve. With assets under administration of $5.7 trillion, including managed assets of $2.1 trillion as of December 31, 2016, we focus on meeting the unique needs of a diverse set of customers: helping more than 25 million people invest their own life savings, nearly 20,000 businesses manage employee benefit programs, as well as providing more than 12,500 financial advisory firms with investment and technology solutions to invest their own clients' money. Privately held for 70 years, Fidelity employs 45,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit https://www.fidelity.com/about.