Planning for your family's future

Our panelists answer questions about wealth planning and charitable giving strategies.

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Talking to loved ones about what’s important to you is a natural part of family life – except, it seems, when it comes to money and estate planning.

A recent Fidelity study found that seven in 10 parents and their children had major misconceptions about the value of their parent’s estate – and on average, children underestimated that value by $278,000. Another disconnect: While eight in 10 parents believe their children know where to find important documents such as wills, power of attorney and health care proxies, only two in three children actually report possessing this knowledge.

To help facilitate positive family money conversations and to provide insights on aging, estate planning, and charitable giving, Fidelity hosted a recent “Planning for your family's future” webcast.

The event was moderated by Joe Steeves, senior vice president at Fidelity Investments. Panelists included Fidelity’s Kevin Ruth, head of wealth management and personal trust and Troy Miksen, vice president of practice management, along with Karla Valas, Managing Director of the Complex Asset Group at Fidelity Charitable®.

Q: Kevin, January is often a month when people review their finances and plan for the coming year. What are some of the financial considerations they should be thinking about this year?

Kevin Ruth: While commuting on the train yesterday, I read an article about New Year’s resolutions. It said that 70% of us make a New Year’s resolution of some sort. However, more than half of us have already broken our New Year’s resolution before the end of January.

Fidelity conducts a New Year’s resolutions survey1 every year and it looks specifically at how people are making financial resolutions. About one third of us, 36%, make financial resolutions, and they’re typically around spending less, getting rid of debt, saving more.

As we start 2017, we should remind folks about contribution limits on retirement plans. The amounts are the same as they were 2015 and 2016. If you contribute to an IRA, or you contribute to a 401(k), those limits are the same as they were last year. So it’s $5,500 maximum into an IRA, both a traditional IRA or a Roth IRA, with $1,000 catch-up contribution if you are age 50 and older.

Employees may contribute up to $18,000 to their 401(k) plans in 2017, with a higher total contribution limit (employer plus employee) of $53,000. For those age 50 and older, a catch-up contribution limit of an additional $6,000 employee contribution is allowed.

Here’s a simple financial resolution: Try to save up to the maximum in your 401(k), 403(b) or IRA. If that’s a stretch, then try to at least save up to level to get your full company match (if your employer offers one).

Lastly, the other news happening this year relates to anticipated changes to tax laws on the horizon. With a new administration in place, it’s too early to see where they are headed, but stay tuned.

Tip: Read Viewpoints: “Three financial resolutions”.

Q: Karla, can you give any tips that could help families resolve issues as they start to have a family money dialogue in a more open way?

Karla Valas: Many of my friends and colleagues are now involved with helping our parents plan for financial transitions. Many people haven’t kicked off that planning discussion because that conversation can be really difficult and it comes in all different forms. Talk to your friends and family, because you’re not alone. Extended relatives maybe have had more success with this conversation, especially on how to break the ice.

At Fidelity Charitable, one of the key ways we see to break the ice and get all members involved (like kids) is getting the family to talk about philanthropy. This allows the family to speak about causes that are important to them, family values, as well as the donation itself. In some cases, the advisor’s role in having the family conversation cannot be overstated. They have access to tools and tips that can provide the diplomatic way to get the other family members involved in an important discussion about money and wealth transfer. They might recommend that you have a dinner conversation when the family is together such as at a family holiday dinner or a summer barbecue.

Tip: Read Viewpoints: The power of planning together.

Q: Troy, are there tips and resources you can share that can help people navigate the difficult family conversations?

Troy Miksen: Yes. We know that illness, sickness, medical issues, incapacitation due to cognitive mental challenges, and death are all very difficult subjects to talk about. But they are inevitable. They’re going to happen. We encourage families and the people they care about to have those conversations when things are great, not when somebody’s sick or when somebody’s under a great deal of stress.

Here are a few ideas and resources that can help facilitate family conversations on these “tough to talk about” subjects:

  • Assign someone who can oversee the paying of bills for your loved one, when appropriate.
  • Assemble your financial team (advisor, legal, tax) well before you need them.
  • Use the “Aging Well” discussion guide to start to map out how the family will help family members as they age. Review medical and health care checklists.
  • Use our “How to Have the Legacy Planning Conversation” discussion guide. Get informed and educated, and begin to demystify some of these scary topics.
  • If you are the one that wants to get that plan started, get children, grandchildren, or parents involved in the conversation with the discussion guide.
  • Encourage your family members read, get informed, and get educated in a safe environment on their own.
  • To help break through that procrastination, use The Conversation Starter guide.
Q: Kevin, can you comment on how to have a successful family money discussion?

Kevin Ruth: Sure. Here’s one thing we know that does not work: When the mother or father says, “OK, family, sit down at the dining room table. Let’s have the family conversation right now. Here’s what I’m doing. Take it or leave it. It’s my money."

Conversation over. "Anybody have any questions?” These encounters do not work well, because no one really says anything.

Contrast that approach to a situation with a client who was a very successful business owner with three children. His wife had passed away before we got involved with them. His daughter had been working with him in the business for over 20 years and his two sons were not involved in the business. When we sat down and met with him, he had laid out his plan to have his business split equally between his three children. However, he had not had a conversation with his children. Once he did, he found out that his sons wanted nothing to do with the business.

Then his daughter said, “Dad, do you realize what you’re doing? You’re going to make me a minority owner. My two brothers are going to actually own more of the company than I own. My husband and I are the ones running it every single day.”

This is not what the father wanted. After hearing what his children had to say, he decided to rethink how he would distribute his assets to his three children.

Tip: Give everyone a voice in the family conversation. Let them have a chance to just tell you how they feel about this money that’s going to impact them and how they are going to react to it. Read Viewpoints: "Special Report: Talking money with your family."

Q: Karla, why use Fidelity Charitable rather than just directing the bequest directly to the charitable organization?

Karla Valas: A donor-advised fund such as Fidelity Charitable can help you simplify the process of giving and ease the administrative aspects of managing your charitable giving strategy in a tax efficient manner. Most importantly, it can help you give the right asset at the right time for the best tax outcome and the highest impact to your charitable organization.

For example, many charities may not be in a great position to receive a gift of publicly-traded stock and may not be able to even accept a gift of non-publicly-traded complex securities. So if you plan to donate an asset outside of the public market (including complex assets, such as private business interests, limited partnership interests, real estate, or other unique assets), charities are going to incur a huge overhead cost to facilitate that charitable transfer.

On the other hand, donor-advised funds typically have the subject matter expertise and the people in the office to quarterback the end-to-end process. All the charity needs to do is receive a check from the Fidelity charitable donor-advised fund. So it’s a way to make giving simple and effectivenot only for the donor and the governing entity of the illiquid asset. In the end, the best winner in the whole game is the nonprofit organization that gets the check.

Tip: Cash is generally the most expensive, least advantageous asset to donate, given other choices. Read Viewpoints: "Strategic giving: Think beyond cash."

Q: Troy, how do you deal with a situation where one of the members of a couple does not have a lot of interest in financial planning?

Troy Miksen: Many times when we meet with clients or couples, there’s typically one person who likes to be in control of the investments and finances. Oftentimes the partner or a spouse is not interested. They are completely fine with the husband, wife or the partner making the decisions. We are not trying to get the secondary spouse or partner to be part of the decision-making if they don’t want to. However, they need to be informed. They need to be educated and they need to be organized. They need to know there’s a plan.

We generally recommend that the secondary spouse or partner meet the investment professional to prioritize the two or three things that are most important to them. We have found that many times, the priorities of each member of the couple do not match up.

Both members of the couple need to understand that there’s a retirement savings plan, a retirement income plan in place. Everybody needs an estate plan with a designated executor, regardless of their age, not only for asset transfer, but for other key decisions that are going to be made at some point. There need to be powers of attorney, beneficiaries, and health care proxies in place.

Lastly, anyone who might be a key decision maker, or somebody that has a control—the executor, power of attorney, health care proxy—not only do they need to know their designated roles, but they need to have accepted that responsibility beforehand. You don’t want to find out that you’ve been assigned executor duties by Uncle Joe—but you never had the discussion or agreed to serve in that capacity.

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1. Fidelity Investments 2017 New Year Financial Resolution Study;
The views and opinions expressed by the individual panelists are their own as of 1/31/2017 and do not necessarily represent the views of Fidelity Investments. Any investment products or services discussed today are for illustrative purposes only and should not be construed as a recommendation.
Fidelity Charitable® is the brand name for Fidelity® Charitable Gift Fund, an independent public charity with a donor-advised fund program. Various Fidelity companies provide services to Fidelity Charitable. The Fidelity Charitable name and logo and Fidelity are registered service marks of FMR LLC, used by Fidelity Charitable under license.
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