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Update on My Parents’ Estate Planning: Insights for Financial News Consumers and Investors

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Estate plan file in a filing cabinet


One of the most popular articles I’ve written to date is Lessons I Learned From Being The Estate Executor For My Parents. Today, I bring you an update on my parents’ estate planning, highlighting important insights and developments in their financial journey. As an investor and finance enthusiast, I believe these updates can provide valuable information for financial news consumers and investors alike.

“Final” Housing Move: Transitioning to Assisted Living

Last year, my father’s fall prompted the decision to move my parents from their independent living cottage to an Assisted Living apartment. However, there were challenges in the process, as the complex failed to arrange the move properly and timely, resulting in a smaller unit. Thankfully, my youngest sister intervened and ensured the transition was completed successfully.

They now reside in a Continuous Care Community (CCC), which offers housing and care at every stage of life. The CCC also provides onsite hospice services. In the event of my father’s passing, my mother will likely move to the Skilled Nursing wing, where dementia patients receive specialized care.

Driving No More: Adjusting to Changing Health Conditions

Due to my father’s fall and his increasing reliance on pain medication, as well as a recognition of his slower reflexes, my registered nurse sister convinced him to stop driving. My mother, who has been coping with dementia, gave up driving years ago. We now rely on the complex’s transportation services and divide non-routine trips among the four of us. With the availability of online ordering and delivery, the absence of a car hasn’t been a major inconvenience.

Funeral Planning Progress: Preparations for the Future

Recently, my father and I visited the funeral home to finalize arrangements and schedules. While the casket and burial plans had been made beforehand, we chose not to pre-pay for them after considering the expenses involved. Instead, we focused on organizing the details outside the funeral home’s control, such as the layout of the services, including scriptures and music, as well as determining whom to invite or notify. My sisters are in charge of arranging photo displays, and my brother-in-law, a pastor, will officiate the services.

Health and Life Insurance Policies: Ensuring Financial Protection

Both of my parents are covered by a Medicare Gap policy that offers comprehensive medical expense coverage beyond what basic Medicare provides. They opted for the high deductible/low premium version of Plan “F.” Unfortunately, my father lost most of his term life insurance when his employer canceled retiree policies last year. However, he still holds a minimal Veterans policy, which will cover his burial costs. Additionally, they have an umbrella policy, as I do, as protection against potential lawsuits. Since they no longer drive, one significant risk factor has been eliminated. I strongly recommend obtaining an umbrella policy if your estate is valued over $1,000,000. The additional coverage is relatively affordable, providing peace of mind.

It’s worth noting that living in a CCC required a substantial entrance fee. The fee essentially acts as long-term care insurance, guaranteeing housing and care even if their assets are depleted.

Drug Coverage Changes: Transitioning to Assisted Living Medication Management

Both of my parents have a Part D drug plan from Humana. State regulations govern how medication management operates in an Assisted Living facility. As a result, their Part D policy is now managed by the Preferred Care Manager (PCM) selected by the facility. All medications must be kept in a locked cabinet in their apartment, with the nursing staff administering each dose. Even non-prescription drugs, such as aspirin or cough medicine, must be treated with the same level of care. On the bright side, all payments are now on autopay, relieving my parents from managing this daily task.

The Trust Is in Place: Organizing and Managing Assets

With a majority of their assets now held at Fidelity, my parents’ Trust is fully prepared for activation upon my father’s passing. As the executor, I intend to continue working with their trust lawyer and the CPA who has been handling their taxes. Under the trust, dividends received and any gains from stock sales before transfer will be taxed. Both of my parents have wills, although only personal possessions will flow through them.

Beach House Change: Updating Ownership and Future Plans

The beach house has been transferred to the Trust. Our plan is to sell the property, allowing beneficiaries to receive cash payments. This may eliminate the need to sell other assets held within the Trust. Considering its location, the value of the lot exceeds that of the small house. We anticipate that it will be replaced with a larger house in due course. Any increase in value before the sale will be taxable to the Trust, simplifying the process and potentially avoiding the expenses of subdividing among nine beneficiaries.

Investments Update: Managing IRAs and Taxable Investments

Both of my parents own Individual Retirement Accounts (IRAs), which require Required Minimum Distributions (RMDs). We primarily meet these distributions using Qualified Charitable Distributions (QCDs). Their IRAs are exclusively invested in equity mutual funds from Fidelity. Additionally, my father’s former employer’s 401k remains intact, exclusively invested in the Stable Value Fund. However, these accounts do not fall under the Trust’s purview, as there is no need for them to be included.

The Trust holds all taxable investments, consisting mostly of equity investments, including a mix of Fidelity mutual funds and large dividend-paying stocks. I closely monitor these investments, ensuring any potential losses are captured through selling, as losses incurred upon my father’s death will no longer be applicable. We have no plans to sell the winners, as all capital gains will be eliminated upon his passing.

Since I also use Fidelity, my parents have granted me full access and trading rights to their accounts. This enables me to view and manage their accounts while also receiving alerts for any activity. Given the prevalence of elder scams, it is crucial to remain vigilant.

Dividend Reinvestment Status: Adapting Investment Strategies

My father actively manages his accounts on the Fidelity platform. Currently, he has opted for reinvesting dividends for all mutual funds and three common stocks, accounting for approximately 30-35% of his taxable dividend income.

Banking Change: Coordinating Bill Payments

Recently, my father handed over the responsibility of their bill payments to me, as their bank prohibits having three signatories on their checking account (although they allowed it for the Safe Deposit account). He receives a weekly balance email, and I have instructed him to transfer funds from the Trust when the balance dips to around $10,000. Additionally, I receive email notifications for any activity in their bank account, regardless of the amount.

Cash Flow and Finances Report: Maintaining Positive Cash Flow

Thanks to their Social Security benefits, my father’s pension, and their investments, my parents maintain a positive cash flow. With most expenses remaining relatively consistent, subject to inflation, I do not foresee a reversal in this trend. However, if necessary, suspending dividend reinvestments should suffice to address any potential issues. Having a Medicare Gap policy that covers costs not covered by basic Medicare eliminates any medical surprises. While Part D coverage may not be as comprehensive, starting in 2025, a $2,000 annual cap will be implemented, assuming Medicare covers all the medications they require.

Beneficiaries and Charitable Giving: Ensuring Proper Distribution

The Trust outlines the beneficiaries who will receive the assets. It is designed to handle the situation if one of the married primary beneficiaries passes away first. Charities will receive 100% of any remaining IRA balances after the last surviving parent’s death. To simplify this process, the funds will flow into my Charitable Gift Fund, facilitating the prompt closure of the remaining IRA while eliminating the need to list all individual charities. I maintain a comprehensive list of charities and their allocated amounts. Any remaining funds will be directed to the family-endowed scholarship fund at Africa University, which is affiliated with the United Methodist Church.

As my parents continue to itemize their taxes, we have utilized Qualified Charitable Distributions in limited amounts. However, if the Income-Related Monthly Adjustment Amount (IRMMA) thresholds increase significantly, there may be scope to adjust our approach. Ultimately, the goal is to optimize their tax situation while supporting charitable causes.

Final Thoughts: Balancing Finances and Emotional Considerations

With the support of my siblings in managing non-estate-related aspects of our parents’ lives, I can focus on the financial side, leveraging my educational background. Regular communication via email and monthly visits ensure that all necessary steps are taken care of and every detail is addressed. During my next visit, I plan to discuss discontinuing dividend reinvestments within the Trust and increasing annual gifts to the extended family. While my siblings and I are financially secure, providing financial assistance to the grandchildren would be greatly beneficial, and my parents do not require those funds for their own well-being.

Keeping abreast of retirement and tax law changes is an ongoing process. Recent changes have impacted my strategy, although they have not yet affected my parents’ situation. For instance, the 10-year rule for inherited IRAs would be applicable were it not for our plans to direct the funds to charity. Occasionally, there are discussions about limiting or ending the “step-up” basis provision in the IRS code, which currently allows for the revaluation of assets to the average price on the date of the owner’s death. Such changes could significantly impact my parents’ estate, potentially prompting us to reconsider asset sales.

All beneficiaries have accounts at Fidelity, although some may need to establish taxable brokerage accounts. This will greatly simplify the stock transfers when I, as the Executor, begin liquidating the Trust. Moreover, it provides a documented record of each transaction, a critical aspect of fulfilling the Executor’s role.

As with my previous article, I eagerly anticipate your comments and insights. Your feedback is invaluable, ensuring that Seeking Alpha articles remain as informative and practical as possible. Thank you in advance for your input!

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