By: Randall A. Denha, Esq.
We’ve all read the news regarding the legal battles that have and are taking place among children or heirs. Or perhaps you personally know of someone in your circle of friends and family who has been dragged through a messy estate. The stories are endless but your family doesn’t have to end up in court with siblings not speaking to one another provided you follow a few of the following simple steps to keeping the peace. The following represent a list of “to-do’s” that I’ve assembled over my years of practice that are sure to quell any possible eruptions among family members:
1. Talk to your children about your estate plan. You may ask how to raise the delicate subjects of death and money? My answer is to call them right from your estate planner’s office.
2. Write to your children about your estate plan. Send them a letter describing your estate plan in general terms and asking for their input. I generally advise against any specifics in terms of who is receiving what and how its to be received. A general sketch of the overall plan will suffice.
3. E-mail your children your estate planning summary. This is normally a 3-5 page summary prepared by your estate planning attorney outlining your plan without disclosing any dollar amounts. Ask your lawyer to send a group email to you and your children so everyone can “get on the same page” and so that your attorney can address any questions or concerns while there is still time to make changes to your estate plan. For example, you may not know that your son is having marital problems or that your daughter is considering adopting a child. However, these items may be discovered as a result of the communication between and among family members.
BONUS TIP: Don’t want to disclose dollars? Simply speak in “shares” (e.g., your half and your brother’s half) and concepts (e.g., outright or in trust until age 35).
4. If you have complicated assets like a family business, you may consider engaging a mediator to guide the planning discussion. The mediator is a neutral expert in trust and estate matters who can ask potentially difficult questions of both you and your children separately and then together assemble the “big” picture of what everyone really wants to happen after the business passes on to the next generation. A small investment in upfront mediation will save huge dollars and heartaches later.
5. Many estate planners suggest giving your children their inheritance equally and outright (free of trust). This is the cleanest way to give money to competent adult beneficiaries with the least strings attached. If there is a reason that one child needs extra protections of any kind, include both that child and their siblings in the planning conversation. All children, of any age, want to be treated fairly and equally. Beneficiaries who receive smaller shares or more restrictive shares often take it as a sign that their parents loved, approved or otherwise thought less of them than their siblings. Alternatively, with a sizable inheritance or a beneficiary who is or may be subject to claims of malpractice or likely to be sued (from whatever sources) the suggestion would be to keep his inheritance in further trust. Of course, trust funds could be used by the beneficiary for his health, education, maintenance and support. The longer assets stay in the trust the more protected they become from the claim of creditors. This is certainly something to consider before making an outright distribution.
BONUS TIP: Plan for reversals of fortune. Over a lifetime, your investment banker son might be laid off and pursue his true dream of teaching high school history. In the meantime, your artist daughter goes on to have a commercially successful career and marry a hedge fund manager. Life brings both fortunes and reversals of fortune. Don’t give your children different amounts to supplement their current lifestyle.
6. If there is a reason to have trusts, make sure your child is a co-trustee of his own trust at a certain age (e.g., age 25) so he starts learning about his inheritance. This will allow him to participate in investment decisions and “co-pilot” the trust with the main trustee.
BONUS TIP: Don’t name one child as trustee for another child. This is a sure way to cause major resentment and conflict for both siblings. Find a family friend or professional to handle that trust. Need proof? Think back to when your children were young and you had to step out for a few minutes leaving the oldest “in charge” of the youngest. How did they react? Now imagine having one child “in charge” of hundreds of thousands or millions of dollars. Imagine you are the child not in charge. How would that make you feel toward your parents and toward the sibling in charge? Keep the family unity and name an outside trustee for those situations where an adult needs a trust to help manage his affairs.
7. If you do use trusts, make sure there are staggered distributions along the way (e.g., age 35, 40, 45….) so your child can begin to handle his inheritance. Its suggested that a longer term payout be provided so as to allow for greater protection of the assets and a general understanding of the beneficiary’s overall financial wellness.
8. Always give your child a “remove and replace” power over the main trustee. The countless reasons for removal of a Trustee. A few may include, someone who is not returning phone calls, not including them in investment decisions, not making reasonable distributions from the trust or charging excessive fees. Don’t leave your child “stuck” with a bad trustee. Give your child a limited power to remove and replace the trustee with another qualified trustee.
9. Rather than name a co-Trustee for your child, allow him to name his own independent co-trustee upon funding of the trust. This applies to competent adult beneficiaries only. A minor would need a trustee named for them but give a removal and replacement power at a stated adult age (e.g., age 30).
10. Ask your estate planning attorney to insert mediation language in your legal documents so that if there is a later dispute, your children will avoid emotionally and financially damaging litigation. Mediation successfully resolves disputes 85% of the time, takes weeks not years, and preserves family relationships not just among your children but among your children’s children. Mediation may be your most important bequest of all.
THIS ARTICLE MAY NOT BE USED FOR PENALTY PROTECTION.
CIRCULAR 230 DISCLAMER: NONE OF THE ARTICLES IN THIS NEWSLETTER ARE INTENDED OR WRITTEN BY THE VARIOUS AUTHORS OR DENHA & ASSOCIATES, PLLC, TO BE USED, AND THEY CANNOT BE USED, BY YOU (OR ANY OTHER TAXPAYER) FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON YOU (OR ANY OTHER TAXPAYER) UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.