Have These Financial Conversations During the Holidays
Updated: Nov 7, 2020
Ah, the holidays… an annual time of food, fellowship, and fun with family, friends, and loved ones. Everyone returns home and catches up on all of the family happenings over the past year.
But the holidays can also be stressful and fast-paced, as people have cookies to bake, presents to wrap, and shopping to do. Not only that, they may have various other year-end projects at home or at work. Those who have lost loved ones or who hurt in other ways might also find these times unbearable, since the holiday season tends to be an emotional period.
Even so, it’s still an ideal time for families to get together and discuss their financial concerns with their loved ones.
Why? Because people usually aren't as preoccupied by work and day-to-day matters at this time of year. The holiday festivities may be one of the few times when everyone is together. There are also many decisions that must be made before the year ends.
Important Year-End Decisions to Cover
These decision points span many areas, from estate and financial planning to tax planning. It's also advantageous to "check the boxes" to ensure that your other important life information -- such as powers of attorney -- is in order.
As you map out the conversation your family will have during the holiday season, be sure to review these areas for accuracy. Ideally, you will review them with your financial advisor, other professionals including your attorney and tax advisor, and whomever will be key players in your estate:
If you are thinking about converting your traditional IRA or qualified plan into a Roth account, take heed. Pay attention to how long this will take, along with the tax ramifications that come with it.
A Roth conversion may be a good idea if it aligns with your retirement timeline. The Tax Cuts and Jobs Act lowered marginal tax rates, so taxes are essentially “on sale” for now. However, marginal tax rates will return to their higher levels in 2026, unless an extension is passed.
You might want to take advantage of the lowered marginal rates, as a Roth conversion may be less costly now. Be sure to confer with your tax advisor and financial advisor before making any decisions. Among other tax consequences, you can't undo a Roth conversion once it has been made.
Likewise, this may be a good time to unload a losing equity position or sell a winning position to adjust your income. That way you can reap the maximum tax benefit from it. Check with your advisor about any selloffs or any decisions in general to see if it makes sense for you.
When all the relatives are together, it’s an ideal time to take an inventory of your financial picture. Check up on beneficiary designations, wills, trusts, and powers of attorney.
You want to ensure that everything is in order. If it makes sense for your situation, your heirs may also benefit from having some idea of what to expect in the future.
Another good idea is for potential donors to write out a letter of instruction, spelling out exactly where all of their assets are, who manages them, and how to get hold of them when the time comes.
Be sure to include all personal items, income tax returns, ownership in LLCs or other businesses, vehicles, mortgages, car loans, utilities, and credit cards. Of course, these materials are in addition to all of your investment and bank accounts, retirement plans, and property-casualty, health, and life insurance policies.
Having Your Estate Plan in Order
An estate plan can mean the difference between a successful asset transfer and family conflict. While a properly crafted plan can help ensure a more efficient transfer of assets to your heirs, a poor plan – or worse, having no plan at all – can be costly.
The result? Family conflict, which can ultimately lead to an intra-familial legal spat that could take thousands of dollars and years of court hearings to settle. And by then, your family may be in shambles from resentment and strife.
Ask your attorney or an estate planning attorney about your options for how you can avoid unpleasant situations like this.
Evaluate your charitable gifts for the year. The IRS allows seniors to gift up to $100,000 of their assets to charity each year. This could help you resolve any required minimum distribution requirements that you have to satisfy.
You can simply direct your RMDs to go to the charity of your choice, so long as the charity qualifies for qualified charitable distributions. In turn, it can help relieve your tax burden for the year.
Involve Your Loved Ones in the Conversation
As you do these sum-ups, think about your preferences and thoughts. Then connect with your spouse, if you are married, and discuss what is on your mind.
Afterward, start bringing others in: the professionals who will help carry out your wishes (financial advisor, accountant, and attorney) as well as key players in your legacy plan. That can include heirs and/or appointed roles including guardians, trustees, executors, and powers of attorney designees.
From there, considering involving anyone whose financial and health statuses may affect you. While this usually means immediate family members, other loved ones or friends may also be part of this circle.
If anyone hesitates to take part, build a bridge. You are reaching out to them out of care and respect for their wishes. Your goal is to set the stage for family unity before when times might become more difficult.
At the very least, you will want your loved ones to know of the professionals who will be carrying out your plans. Make sure that your loved ones know who can answer questions and who will help manage your estate process.
Talking About Finances and Other Life Matters with Family
You can probably see the value in discussing money matters and other affairs with your family. But it may still be difficult to broach the topic. You might use these queries below as guiding points to ease into conversation as you all sit around the fire:
"If money were not a concern, I would like to do this the most: _____________."
"If there was one thing that I wanted you to know about money (and your inheritance), it's ___________."
"If my health reached a point where I was unable physically or mentally to care for myself, I would wish: _______________."
"Should the situation arise, my preference for guardianship would be: ___________________."
"What would our options for long-term care be if I or your mom/dad/other loved one became impaired?"
"If I passed away, here is what would be available to your (mother/father/other loved one) for their financial support." [Then describe income plan and other resources available.]"This is what I would wish for my funeral and/or end-of-life arrangements: ______________."
"I have this story, anecdote or life lesson that I have always wanted to share with you: _______________."
"Here's a story about something that we have passed down from generation to generation in our family: ______________."
"Here is how I have my legal documents stored and protected -- and where you can find them: __________________."
These are just some of the questions that you may need to discuss with your relatives and loved ones.
What If It Brings Up Money Tensions?
With all of this said, it's common knowledge that money can be a touchy subject. For example, say you have some future heirs with vastly different levels of wealth or assets.