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Money February 2016

Dollar Sense

Mysteries Are Fun, But Your Estate Plan Shouldn’t Be Mysterious

By Teresa Ambord

It’s a good idea to have your attorney and financial advisers present, so they can answer questions your heirs might have about tax implications and legalities involved in an inheritance. You can build trust among your family members and give them a chance to ask questions and work out contentious issues ahead of time.

Everybody loves a good mystery, right? But when it comes to your estate plan, keeping secrets is a bad idea. We’ve all seen the movies where a rich old guy has passed on, and the family shows up for the reading of the will. Each family member anticipates sudden wealth. There’s usually one brother who’s a lush and one female gold digger. There’s an aloof nephew who feigns disinterest in material riches (but who is secretly neck-deep in gambling debt). And of course there’s the outsider (like the shapely young secretary) who ends up with the whole enchilada while the others share a thousand acres of swampland.

The mystery may make for good entertainment, but it makes for bad reality. Estate professionals say it’s better to hold occasional meetings to talk about your estate plan with your family and other heirs. Otherwise, at a time when your survivors should be pulling together, they may end up in irreconcilable squabbling.

Who should be in the meeting? Anyone directly affected by the contents of your will, of course. But also it’s a good idea to have your attorney and financial advisers present, so they can answer questions your heirs might have about tax implications and legalities involved in an inheritance. You can build trust among your family members and give them a chance to ask questions and work out contentious issues ahead of time.

What should you talk about? Go over the contents of any relevant documents, and make sure someone you trust knows where they are kept. And provide an overview of the main decisions you’ve made and possibly the reasons why you decided as you did if it’s not obvious. One key source of contention comes when parents divide their assets in a way that seems uneven among the children.


It Isn’t Fair… Or Is It?

Parents with significant assets often feel obligated to leave equal shares of inheritance to the kids. In fact, failing to do that is sometimes enough to break up a family, once the parents are gone. But reality is, there may be a lot of important reasons to divide your estate unequally. Holding a family meeting where you explain your reasoning may prevent problems later.

Here are some examples of conditions when you might decide to forget about equality and divide your estate in favor of wise judgment instead:

  • Family Business. Suppose most of your wealth is tied up in a family business, but only two of your five kids work in that business. It would likely be a mistake to leave shares of the company to your kids who are not involved. They may insist on selling the company to get their inheritance, or make unwise decisions that could cause the business to fail. You could leave the full company to the kids who are involved, and leave non-voting stock to those who are not. Or, you could use life insurance proceeds to create a cash inheritance for those not in the business.
  • Special Needs Child. One of your offspring might have significant medical expenses or long-term care costs that the others don’t have. Suppose you have a severely disabled adult son who requires full-time care and therefore has continued to live with you. Once you’re gone, he may have to move into a long-term care facility or pay for full-time live-in help. Clearly he’ll need a larger share of the inheritance.
  • Life Choices. Perhaps you put one of your children through medical school and he’s now a cardiac surgeon with a healthy income of his own. Your other children pursued more modest goals and have more ordinary incomes. Whether that was by choice, or because you could only afford medical school for one child, it might make sense to leave a larger share of your estate to the other children.
  • Grandkids and College. Another scenario: Perhaps you helped all of your older grandchildren pay for college. But you still have two young granddaughters who aren’t close to college age yet. You’ll want to give their parents enough to ensure college is a reality, just in case you are not around when the time comes.
  • Irresponsibility. Then again, you might have four responsible grown children who are self-supporting and hardworking, and one daughter who is heavily in debt and getting deeper. You already know that any money you give her will go right to a shopping spree and not to make her future better. She may be expecting a chunk of cash, but talk to your accountant to see if there is a more controlled way she can receive her share.
  • Other. You might also have an estranged child who cut off contact and stayed away. Conversely if you or your spouse needed a great deal of care, one of your kids may have made personal sacrifices to provide that care, while the other kids did not. Or perhaps you have a blended family, with stepchildren who will inherit from their other parent.


Unveil the Mystery Ahead of Time

Whatever you decide, it’s better not to leave the subject of unequal shares — or any other surprises, such as major charitable bequests — for after you’re gone. You’re setting the kids up for a fight that may end up in court, or break up the family. Instead, set up a meeting in your attorney’s office, where you can explain your reasoning, and give your heirs a chance to ask questions. Chances are, they will understand. They may also have additional information which, when they point it out, will cause you to make changes in your plans. You can also meet with each child individually at some later point, to talk over concerns they might have. Consult with your estate attorney about how to proceed.


Postscript: Do you know why we say “last will and testament?” Originally a will was only used to distribute real estate. A testament was needed to distribute personal property, thus the “last will and testament” became a common term. These days, however, the terms are often used interchangeably.


Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

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