April 13, 2010   Inheritance

Ten Simple Steps to Prevent World War III Among Your Children

By Irina Shea, Esq.
How bad is it out there? Perhaps you’ve been reading news of high profile estate disputes with tens of millions of dollars at stake. Or perhaps you personally know of someone in your circle of friends and family who have 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, if you follow these 10 simple steps to keeping the peace.

(1) Talk to your children about your estate plan. How to raise the delicate subjects of death and money? Call them right from your estate planner’s office. The conversation might go something like this:

“Hi Nick, This is Mom. Daddy and I are in the estate plan­ner’s office and she said we should run some things by you before we sign. Do you have a few minutes?

“OK, sure. I’m actually glad you called. I’ve been think­ing about whether you and Dad have taken care of this stuff.”

“Yes, dear, we are now. Hold on a minute and I’ll put the lawyer on the line.”

“Hi, this is Irina, I’m your parents’ estate planning lawyer. I’ve been talking with your parents about what type of inheritance might make the most sense for you. [Lawyer describes options such as outright bequests, trusts, powers of appointment]. But your parents want to make sure they have your blessing on this first. Do you have any questions or concerns?”

(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. The letter might sound something like this:

Dear Aidan and Nick,
 
We are writing to you about our estate plan so that you may know our hopes and wishes for our family when we are gone. We also want to be sure that our plans take into account your hopes and wishes for the future and would like your input. We are planning to leave each of you half of our estate in trust until age 35 at which point you would take your share outright and free of trust. We are also leav­ing you our furnishings, artwork, jewelry and other per­sonal effects to select from as you wish, with the balance to be sold. The balance of our estate consists principally of our house and several investment accounts including a large IRA. We are leaving you these assets in equal shares after payment of estate taxes and administration expenses. Our lawyer tells us that we may also be able to pre-fund education accounts for grandchildren which we would like to begin doing if you would like us to. We will be meeting
with our estate planner again in two weeks and welcome your thoughts in the meantime.

Much love,
Mom & Dad
 
(3) Email 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.
 
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, engage 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 to get 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) Wherever possible, give 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 thoughtless of them than their siblings.
 
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. Give equally and love equally.
 
(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 leaving 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 25, 30, 35) so your child can begin to handle his inheritance.
 
(8) Always give your child a “remove and replace” power over the main trustee.  The biggest complaint we hear at www.BeneficiaryForum.com is that beneficiaries are stuck with a bad trustee. Someone who is not returning their 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. Need proof? Imagine you are in a marriage arranged by your parents with no possibility of divorce. How would you feel?
 
(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. Minors would need a trustee named for them but given a remove and replace 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.
 
About the Author
Irina Sturam Shea, Esq. specializes in mediation of inheritance disputes as well as traditional estate planning and administration with a view toward conflict prevention and resolution (www.iri­nashea.com). Ms. Shea is also a former trust officer and founder of a website designed especially for frustrated trust and estate beneficiaries to solve their problems promptly and peacefully. (www.beneficiaryforum.com)
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