A New Year's Resolution
One of our client's spouse spent the better part of 20 years—maybe even more—trying to convince her husband to get their estate plan in order. She wasn't sure why he was so hesitant, but she speculated that he was uncomfortable contemplating his own demise and thought that somehow finalizing an estate plan might expedite it. Regardless of the reason, he finally gave in a few years ago and their estate plan is now complete.
That is to say, their documents are drafted. But that's it. Aside from informing their son that he is named executor, no additional conversations have been had and none of their children have any knowledge of what is stated in those documents.
So I ask you, is an estate plan complete if the beneficiaries have no understanding of what it contains? I've been thinking about this recently and my response is “no.” Drafting the documents is only part of the estate planning process. Sharing the details of that plan with your family is an additional step that is often overlooked. Therefore, we suggest a family meeting—or at least suggest having one—so family members learn more about parents' wishes. We always suggest a supplement document, sometimes referred to as a “Letter from Heaven,” which can state more personal wishes, directions and locations of property to help explain a family's estate plan. A family meeting probably isn't on your radar, but you might want to consider holding one in the New Year. I know, I know. The New Year is supposed to be a time to think about losing weight, saving more money or on a brighter note, planning a family trip, and most people find very little fun in estate planning.
However, for many the New Year is also a time to reflect on your legacy, which may very well be carried out through your estate plan. So for those of you with children and important loved ones who live far away, the New Year presents an opportunity for you to begin planning for a family meeting. If you dread having this conversation once, you certainly don't want to have it multiple times.
Scheduling a family meeting would suggest that you already have an estate plan in place or that you have already given considerable thought to it and are simply finalizing the details. If you have not reached this point please be sure to begin this process in the very near future. Failure to plan could have major negative consequences including, but not limited to tax implications, family conflict, loss of assets and a significant amount of stress for your survivors.
Speaking of family conflict, this is perhaps the most important reason for holding a family meeting. Every year siblings find themselves embroiled in disputes over how their parents' assets are divided thus creating tension within the family. Much of this tension could be avoided if parents discuss their estate decisions with their children to provide an explanation and ensure everyone understands why certain choices have been made. Regardless of how well your family gets along now, financial matters and healthcare decisions could quickly create a divide within the ranks. There are countless examples of siblings turning on each other due to jealousy or a disagreement over how things are being handled. So even if you think your family is beyond this type of conflict you might want to consider closer examination. And don't think for one minute that your estate will be too small to create conflict or jealousy. Regardless of the size of the estate, if your heirs receive unequal portions there will be hard feelings unless everyone understands ahead of time why and how your decisions were made.
Following are some questions to think about as you consider your need to call a family meeting:
- Do you have minor children? If yes, you must determine who would take over as guardian if you and your spouse were to pass away. It is important for you to meet with your chosen guardian to explain how you wish for your children to be raised and discuss the level of access the children will have to the funds they inherit. And it should go without saying that you must first confirm that your chosen guardian is willing to take on this important responsibility.
- Do you have a child with special needs? Whether your child has physical, mental or emotional needs you must plan for the care they will receive when you are gone. In many families, this responsibility will fall upon the siblings. Hold a meeting with all involved to discuss the particulars. Do not assume the other children will be agreeable to take on this duty. You may be surprised to find they are not willing to help. You might have to find other family members or hire a professional to act as guardian.
- Are your children aware of how the assets will be split? Will each child receive an equal share? Are any of them excluded from the estate? I think most parents choose to divide assets equally among their children. However, some may choose not to for any number of reasons. If this is the case in your situation I encourage you to meet with your children to explain why you have chosen to give unequal shares.
- Adding to the question above, have one or more of your kids required more financial support than the others? Some kids transition into adulthood slower than others and some choose career paths that are less financially secure. So it is natural that parents will provide help to a child who needs it, but not give help to a child who is able to support herself. Is this fair? Most parents probably think it is. The children, on the other hand, might think differently. In this type of situation, the parents might plan to equalize things by leaving a larger share of the estate to the child that has previously received less support. The risk here is that there might not be an estate left if the more needy kids continue requiring support.
- Do you have children from more than one marriage? What about step children? This can be tricky, especially if you plan to leave equal amounts to both your biological children and your step children. Even if you think this is fair your biological children may not, particularly if all the children were grown by the time the second marriage commenced. Please be sure to share your rationale for splitting the assets this way so both your biological and step children understand. They may not like it, but at least they will hear it directly from you rather than being surprised when your estate is distributed after your death.
- Do your children know how your medical and healthcare needs are to be handled in the event you become incapacitated? Make sure the appropriate medical directives are in place and share the information with your children. This will help prevent friction if your kids are divided over issues involving your treatment. We also offer a helpful tool The Family Emergency Workbook. It provides information about all of your important records which should be shared with your loved ones in the event you become incapacitated or die.
- Have you chosen your executor? Have you informed him or her? Make sure your executor knows that they have been chosen for that role. And make sure they are accepting of it.
- If your executor is one of your children, have you explained to the others why they were not chosen? The other kids might feel slighted because they were not chosen.
- Is there a family business? Will the kids be taking over? This can be a very complicated situation particularly if the children are involved in the business. Are your children capable of managing the company on their own? Is more than one of them interested in taking over? Do they agree on a vision for the future? If you are planning to dissolve the business or leave it to someone other than the children you will want to address this as well. A properly drafted succession plan should be in place to ensure a smooth transition.
- Are you leaving a large portion of your estate to charity? Are your children aware of your philanthropic wishes? Unless you make considerable lifetime gifts to your children, I think they will assume they are in position to inherit most of your estate. Just think of the shock they will feel if they learn you have decided to leave the majority of your assets to charity. Involving them in your philanthropic endeavors could really soften this blow and help them feel as though they are a part of something bigger. Helping you in these endeavors will give them a greater sense of responsibility to carry out your legacy and may instill in them the same spirit of giving.
- Are there important family heirlooms that might be fought over? How do you decide who gets the china, jewelry, family photo albums or any other important treasures? I think these items are typically bequeathed based on gender with the boys getting dad's things and the girls getting mom's things. To avoid hard feelings you may want to make sure that everyone is ok with the items they will receive. Every family is different so I realize this list may not have a question that directly pertains to your situation, but I think you get the idea of why these conversations are so important. Assuming you are ready to move ahead with this process, let's look at how a family meeting should be conducted.
Initiating the Conversation
As I stated in the opening paragraph, we suggest that families hold a meeting sometime in the New Year. This isn't an easy topic. Many children may hesitate to suggest a family meeting through fear of appearing greedy. On the other hand, parents may hesitate to call a family meeting if they know their estate plan contains items that will become contentious.
It is ok for children to request a family meeting, but I believe that in most cases it is best for the parents to do so. Most children—even if they have reached middle age or beyond—will look to their parents for strength and guidance. By requesting this meeting the parents show the rest of the family that it is ok to think about what life might be like without them.
Timing and Location
Estate planning is about more than the distribution of assets. It is about preserving family values and traditions and maintaining family harmony. Therefore, the ideal time to hold a family meeting is sooner rather than later while all parties involved are healthy and emotionally mature enough to handle the serious nature of the discussions. The meeting should be held in a comfortable and convenient location with privacy and limited potential for distraction.
Who to Include
Both parents and all adult children should be present unless there are mental or emotional issues that prevent them from participating. Young children and teenage children can be included, but you may want to limit their level of participation. Thinking about the death of their parents, upon whom they depend, may be too much for them to take in. In addition to family, consider including a neutral mediator who will be responsible for monitoring and recording the proceedings.
Parents need to put considerable thought into this process. You must be in complete agreement regarding the desired outcome and should put thought into what the overarching message will be and how it will be delivered. Set an agenda in advance and invite each participant to suggest topics to be included. The mediator may meet with participants separately before the official proceedings to make sure no hidden agendas exist that could potentially derail the conversations.
Family estate planning meetings are a lot of work and should not be taken lightly. This New Year, take the time to schedule, plan and execute a full discussion. Commit to planting the seed and spend a little time talking to each of the kids individually in January. Let them know that you have been thinking about the future and that you want them to be a part of your planning process. This will take some time—perhaps several months.
Do not assume your kids know your wishes. Do not assume they agree on what you think is fair. Do not assume they are unwilling to have these important conversations. Adult children are at a point in their lives where they are emotionally mature enough to handle the topic. In most cases they will be comforted to know you will be taken care of during your last remaining years. They will also be comforted to know that your wishes will be fulfilled.
Just don't let the year go by without having your family meeting. Make this one New Year's Resolution you really do keep.
by Robert Warner
Robert Warner is Managing Director, The Pilot Program, Johnson Financial Group and EVP Johnson Wealth, a Johnson Financial Group Company. He is also a Chartered Financial Consultant (ChFC®). He has over 25 years experience helping clients, including active pilots and their families achieve their retirement and estate planning goals with an emphasis on estate conservation and wealth transfer planning.READ MORE about Bob Warner.
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