A complete estate plan does not simply provide for moving assets from one generation to the next. A complete estate plan will focus on the enlightened dreams that you have for the next generations and the people that you wish them to be even if you are not here to guide them. A complete estate plan will also seek to mitigate, resolve or plan to address any concerns, worries and fears that you may have for the next generation.
Many of us worry about creditors, predators, in-laws and out-laws and how they may derail your hopes and dreams for the next generation. We worry about the later behavior of the spouses, children or heirs of the next generation. Some even worry that the receipt of the inheritance itself at an inappropriate time can have a negative effect on our children or other heirs. This can all lead to conflict between our children or other heirs. Conflict results in at best a financial drain on the estate and may frustrate the financial and other goals that you may have for your children or heirs. Worse still, conflict can produce fractures and ill will between the family members that may never be resolved.
Careful planning should be finely tuned to the family dynamics and to the nature or character of the assets held. The following tips may help you minimize the potential for disputes or conflicts between your heirs after you are gone.
1. Are you providing for an equal distribution or for a fair distribution of your estate?
I have five (5) brothers and three (3) sisters. My parents wanted their estate to be divided equally between us without showing any favoritism. An unequal distribution can lead to conflicts later, without a clear understanding of the reason for a different distribution scheme. A variety of factors may motivate a different distribution goal. For example, heirs may face or enjoy different life circumstances or have greater needs than others. Some heirs may provide greater help or stay in closer contact over the years than others. The family’s wealth may be held in a family business and some, but not all, of the children or heirs, work in that business. You should consider your overall goal in how assets are to be distributed to the next generation.
2. Communication is key.
Encourage next-generation involvement (when appropriate) in the planning process. This may prevent future disputes. For example, one family’s goal is to ensure that certain family property including a home and vineyards remains in the family for future generations. We met with the children to discuss the goals and establish a process to permit the children to work together in the years to come. We continue to meet each year to discuss the family’s goals.
3. Private discussion of client goals.
While you may involve or permit family members to attend planning meetings on occasion, your attorney should always meet with you privately throughout the process to ensure that your specific goals are addressed and understood, and document those goals as needed to provide future guidance.
4. Consider the next generation’s attitudes about money and family relationships.
For example, are the heirs ready for the money? Do they get along? Do you have any goals for the next generation? What kind of people do you want your children to be when you are no longer there to guide them? Many people seek to avoid creating trust fund babies and hope that their children are successful, responsible, caring and independent adults.
5. Consider family relationships when selecting successor trustees.
For many families, selecting a son or daughter to act as a successor trustee is the best choice. However, for other families, having one sibling oversee the trust administration and the shares to his or her siblings is a recipe for future family discord or disagreement. For these families, a professional trustee may be appropriate. Be sure to consider the family dynamics and the ability of the children to work together. When future generations meet for Christmas or other family gatherings, the focus should be on the relationships, not on trust administration or other issues.
6. Utilize independent tie-breakers for co-trustees when appropriate.
If co-trustees are named in a trust instrument, consider including a majority-rules provision and naming someone to serve as a tie-breaker. This creates an informal dispute resolution process to help resolve any future disputes without going to court.
7. Carefully address allocation of personal property and effects.
An often overlooked issue is the importance of addressing the division or distribution of personal property and effects. I once had a trust dispute arise in a large estate that was inspired by and ultimately resolved by a distribution of a wooden pagoda that had great sentimental value to a particular beneficiary. That fact was not immediately identified and was the key to resolving the dispute. The point is that pictures and other items of personal property can have value to the beneficiary far in excess of economic value. This was an issue in the comedian, Robin Williams’ estate. The children from Robin’s prior marriage contested the proposed distribution of items of personal property. While Robin’s personal property is certainly more valuable than mine as it included art, collectibles and awards, these items would seem to represent a relatively small percentage or a portion of the overall value of his estate.
8. Lifetime gifts, advances and loans.
Be sure to clearly address in the plan the effect of lifetime gifts, advances, and loans. For example, you may wish to reduce gifts at death by the unpaid loans or advances.
9. Update beneficiary designation forms.
Beneficiary designations are simple and easy to complete but are often overlooked. If you change the beneficiaries in your trust but fail to make corresponding changes to beneficiary designations on specific accounts, your estate may not pass the way you want.
10. Periodically monitor and update the plan if necessary.
Your attorney should meet with high net worth clients or complete trusts or estate plans annually to monitor and update their plans. Your attorney should meet with all other clients at least every three (3) years. If new family issues develop, your attorney can make adjustments to avoid future conflicts.
These are a few of the factors to consider when updating or creating an estate plan that helps minimize disputes or ill-will later. Each plan should carefully consider the family dynamics, including your desires and the heirs’ needs, and the character, nature and title of the assets held.
I hope that his information is helpful in making a positive difference in your life and for your family.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
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