An attorney may draw up the documents to implement estate plans, but you can play a valuable role in the planning process by helping clients evaluate and cope with troublesome situations that could cause family conflict down the road.
Nobody wants to create more heartache for the loved ones left behind after he or she dies. Yet some people inadvertently do so by not facing up to the inevitable and making plans for the distribution of their property. Others make the wrong plans, because they simply can't come to grips with complicated family scenarios and the emotional storms they generate.
If any of your clients have complex family or business situations that may open the door to bitter fights among heirs, your know-how about your clients' financial affairs can help. While an attorney is the professional most closely involved in estate planning, you can provide your clients with an objective overview of the situation, thereby helping them sort out complicated issues early in the planning process.
There are many potentially troublesome issues in estate planning, but the two that often loom largest are:
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Blended families with his and hers children
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Family-owned businesses, especially where some, but not all, of the children work in the business
Multiple marriages
In many families, the older generation will establish a trust to provide income to the surviving spouse, with remaining principal going to the children. This works fine in many nuclear families, because it provides for both generations while using the federal estate tax exemption to minimize potential estate taxes.
In blended families, however, income beneficiaries and remainder beneficiaries may be at odds when it comes to investing trust assets, since the spouse will want maximum current income, while the children will want maximum growth. Children may fear that their stepparent will spend all the money and leave nothing for them. The surviving spouse, in turn, may fear getting shortchanged by inadequate income.
In one case reported by Evan S. Russell, a CFP in Portland, OR, the children pitched a legal battle against their stepmother—even though, in this particular case, she had raised them almost from birth. The lawsuit is still going on, five years after her husband's death, preventing resolution of the estate. Meanwhile, not surprisingly, the surviving wife wants the trustees to invest for the highest possible income. In light of the lawsuit, she has no interest in leaving anything to the children. The children would like the entire trust principal invested in growth stocks and real estate for future appreciation, even if it means their stepmother gets no income at all.
Such situations are best resolved during life so they don't create costly stalemates and lasting enmity after death. Here are some suggestions:
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Get clear. Map out where the family is and exactly what the older generation wants to do. Edward W. Gjersten II, a CFP in Glenview, IL, notes that in some families this may mean leaving most or all of the money to one set of kids if child support and college expenses have been paid for the other set during life.
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Get everyone in the loop. Once a decision is made, communicate it to all the beneficiaries. Surprises are unhealthy when it comes to inheritances.
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Choose the right trustees. Trustees should be independent, not members of the family. "Proper selection of trustees is critical," says Steven Oshins, a trusts and estates attorney in Las Vegas, "in playing fair with children of multiple marriages." You may be able to help in identifying appropriate trustees, both individual and corporate.
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Consider other options. With "unitrust" distributions, a specific percentage of trust assets is paid to the life beneficiary without regard to how much income or capital gains is earned by the trust. Alternatively, to achieve the same effect but eliminate the need to revalue trust assets each year, Oshins suggests using the Consumer Price Index. In a marital deduction trust where all income must be paid out, he may include a provision to base the first distribution on whichever is greater, all income or a certain percentage of the assets as valued for estate tax purposes. This initial payout is then increased each year by an amount based on changes in the CPI.
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Don't overlook the little things. "As morbid as it sounds," Gjersten says, think about funeral arrangements and "determine who will write the obituary." In one case he recounts, the surviving spouse wrote an obituary, but the children from the first marriage didn't think it was OK. Two different obituaries wound up being submitted to two different newspapers.
The family-owned business
It's fairly common for one child to follow Mom or Dad's footsteps into the family business while others pursue separate interests. These situations complicate estate planning, however, because the business may represent a substantial part of the family's wealth.
Children who have worked in the business for years may feel, quite rightly, that their efforts created a large part of the value. On the other hand, parents do not want to shortchange their other children.
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Use other assets. One solution to this problem is to use other assets, if they are sufficient, to compensate the children outside the business. One couple left one son the business and the other son their home and investment accounts.
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Sell shares. Another possibility is to sell shares in the business to the involved child when the owner retires, rather than leaving it to him or her outright at death. A sale keeps the arrangement businesslike.
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Consider insurance. Still a third solution—perhaps the most common—is to buy life insurance to make up any shortfall.
Something has to be done, says CFP David W. Hayes of Franklin, TN, or "one child will wind up feeling that he's not getting a fair shake." If clients can't seem to come to a decision, remind them that the emotional fallout can last for decades. Few people want their children to be on the outs forever.
Think it can't happen? Gjersten describes an 85-year-old retired dentist who hasn't spoken to his brother for 35 years because, on the death of their parents, the brother got an extra thousand dollars.
Other sensitive issues
What should parents do when adult children have vastly different financial needs? What if one child is a successful professional in a dual-income marriage, while another is a single social worker engaged in a gratifying but low-paying career?
Your client may want to leave more property to the child who needs more, but he or she should be careful to discuss the plans in advance. Better yet, Gjersten suggests, "Split assets fairly between the kids, regardless of their economic means, to keep peace in the family." The successful child, if feeling generous, can always disclaim a portion of the estate in favor of the sibling. Even if this doesn't happen, emotions run high when a parent dies, and it may seem terribly unfair if success is punished with a smaller inheritance. It may be interpreted, emotionally, as indicating who was best-loved.
Along the same lines, personal items frequently cause more dissension than money, especially when it comes to sentimental items like Mom's wedding ring. Ask your clients if they have a list of who should get what. If not, they should prepare such a list or, at least, discuss the matter with their children.
In the end, all of your clients want what Hayes calls the "Christmas plan," a solution where everyone in the family can still enjoy holidays together and be on speaking terms. Your clients will need an estate-planning attorney to draft the documents that will meet that goal, but with your knowledge of the client's life and finances, you can be a valuable part of the planning team.
