June 10, 2021
The overlooked estate planning step
Those who have built significant wealth are right- fully concerned about how best to use that wealth for family financial protection. As often has been noted, the wealthy want their heirs to have enough to be able to do anything, but not so much that they don’t have to do something.
Trust planning comes immediately to mind when planning for a child who is a minor. The trust can provide for education funding and getting a good financial start in life. Incentives can be built into the trust for achieving certain milestones, such as reaching a certain age or beginning a professional practice.
But what about when the children are fully grown, established in their careers and financially mature, in their 30s or even 40s? Even then, trust-based planning will be an excellent idea for many affluent families. Trusts may play an important and valuable role in asset protection, in assuring an inheritance for multiple generations, and in providing an avenue of flexible response to future circumstances.
So, you’ve decided on a trust-based estate plan. What do you tell the kids, and when?
Get on the same page
To get everyone on the same page everyone needs to be in the same room. The meeting should include the nominated fiduciaries and the children, and is typically moderated by the estate planner. A family meeting will be especially important for a second marriage or blended family situation if specific property will go to specific beneficiaries, if assets will be distributed unequally, and if there will be a hierarchy in the nomination of fiduciaries. The goal is to avoid surprises and reduce future conflict after the death of the client.
When the client is quite certain of the plan for disposition of the assets, the family meeting should be scheduled after the documents have been signed. However, if the client is uncertain about the plan or the choice of fiduciaries, it may be better to have the meeting earlier.
Open the family meeting with a discussion of wills, trusts, and the respective roles and responsibilities of personal representatives, trustees, attorneys-in-fact, and health care agents. After a summary of the planned distribution of assets, the parent or parents take over. They may explain the thinking behind the distribution plan and the choice of fiduciary or fiduciaries.
Unequal treatment. Heirs have a way of confusing the degree of love during life with the size of an eventual inheritance. Thus, if the shares of siblings will be unequal the potential for conflict and hurt feelings rises. Unequal shares of an estate may be appropriate for many reasons. Some children many have been provided with more during life, almost as an advance on their inheritance. Some children may have achieved such a degree of financial success that the family will be better served by directing the resources to others less well off. Other family members may have demonstrated an incapacity for sound financial management, making special arrangements for their inheritance necessary.
An airing of the motivations behind the plan will usually promote family harmony. But at the same time, heirs needs to understand that estate planning isn’t a family wide project, and the plan itself isn’t being put to a vote.
Setting realistic expectations. Some children are hop- ing for a larger inheritance than they are likely to receive. Others may expect too little. Either misconception can lead to unwise planning choices by the heirs in their personal financial management. A reality check is another benefit of the family conference on inheritance.
A family tradition of philanthropy
Very often parents are as concerned about passing their values to their children as they are about financial security. Family philanthropy can be an excellent mechanism for sharing those values. A variety of strategies are available, from private foundations to charitable trusts to donor-advised funds.
How to handle the nonfinancial assets
Sometimes the nastiest fights among heirs are those over items that have more sentimental than financial value. These problems often can be defused by asking the heirs for their choices and making gifts of specific items during life. But if everyone wants the same things, a plan for rotating choices may be needed. When all else fails, it may be necessary to sell the items and split the proceeds.
May we be of service to you?
Estate settlement and inheritance management are core parts of our daily business. Because we are neutral professionals, we can normally command the respect of all the heirs for the decisions that we make in the course of estate settlement. Over the years, we have worked closely with many successful families on the implementation of their estate plans.
Can we tell you more? We look forward to meeting with you at your earliest convenience to discuss your goals and objectives.