“Preventing Inheritance Conflicts”

Question:  How can I prevent inheritance conflicts between my children?

Answer: Few things in life are as emotionally charged as the issue of inheritance. It has been well said that “if you really want to know a person’s true character, share an inheritance with them.” It is a fact of life that many families have been ripped apart by perceptions of unfairness in inheritances.

Recall Jesus’ parable of the prodigal son in Luke chapter 15. The prodigal had demanded an advance on his inheritance, which he promptly wasted  on riotous living. When he returned to his father, broken and shamed, the father was so overjoyed at his younger son’s return that he ordered a celebration. What was the reaction of the dutiful, hard working older son who had faithfully stayed by his father’s side? Anger at how the younger prodigal had been favored. Inheritance conflicts are as old as civilization. Your children may be perfect, but you really don’t know them until they divide your money.

In hundreds of estate planning conferences, I have heard the overwhelming majority of parents insist that their adult children will get along, no matter how the estate is divided. However, my experience as an estate planner has shown time and again that this is simply not true.  In order to help minimize inheritance conflicts between your children, here is a rule of thumb: “If you don’t want the blame---treat your children the same.” Inheritance conflicts can destroy otherwise good family relationships and those conflicts can last for generations, affecting not only your children but grandchildren, cousins,  and in-laws.

Let’s look at two examples: (1.)  Mr. and Mrs. Smith  have two children. Their daughter is a respected physician who was a dutiful, hard working child and who went to college and medical school on full academic scholarships. Their son never finished college, and has bounced from job to job, taken bankruptcy, and has constant trouble making his child support payments. Because the Smiths see the son as having greater needs, they decide to leave the majority of their estate to him. What does this say to their daughter? That she is being punished for her success!  (2.) In our second example, Mr. Jones has three children. He was ill for many years and his two daughters took care of him while his son took care of his farm. In  his will he left the farm, which comprised 80% of his estate, to his son. Can you imagine how his daughters felt?

However parents decide to divide an estate, the children  will take this as their final grade  as to how the parent felt about them.  A will is not the place to play favorites; that it is a recipe for resentment. Wills also tend to awaken ancient sibling rivalries; children, even adult children are extremely sensitive to perceptions of unfairness. A “performance-based” inheritance plan—favoring or punishing one child – is a surefire recipe for relationship breakdown among the heirs. 

Most children expect to inherit something from their parents. However, most families never openly and honestly discuss how the inheritance will affect all concerned. If the parents are not open, then grown children may fall prey to old feelings of   favoritism, resentment, deprivation, or being cheated or lied to. On the other hand, parents may resent feeling pressured to give up their financial privacy. Elderly parents may worry that revealing too much information may affect how their children will treat them.

The best way to help prevent inheritance conflicts between your children is through open and honest communication. Family meetings,  clear written explanations, and planning for dividing family heirlooms can go a long way in creating understanding and acceptance. Consult an experienced estate planner and ask him or her to facilitate an inheritance discussion with your children. To help avoid future potential inheritance conflicts, make your heirs part of the solution so that one or more of them will not become part of the problem.

Yes, it is your money, and you may do with it as you wish. But at what cost to your family?  You will be remembered by your heirs. Will your life be an inspiration to others, or will it represent chaos and destruction?  The lives of your heirs can be enhanced by your thoughtful and inspired inheritance planning. Or they can be destroyed.

A Gift for Your Spouse

Question: What should I give my spouse for Mother’s Day or Father’s Day?

Answer: How about giving your spouse some peace of mind by giving her or him a RED NOTEBOOK?

A RED NOTEBOOK is a collection of important family financial information housed in a large, bright red 3 ring binder. We suggest using a RED NOTEBOOK simply because it is easily to recognize and find.  A good place to keep the RED NOTEBOOK is in your bedroom closet, where it is easily accessible, but out of the way of prying eyes. Go to an office supply store and buy the  largest bright red binder in stock; twenty or more tabbed dividers, and  a supply of plastic sheet protectors.

Your family’s RED NOTEBOOK should at a minimum contain the following tabbed categories:

1. Family Advisors: attorney, accountant, financial advisor, banker, insurance agent, etc.
2. Records Locator: Your RED NOTEBOOK should contain copies of essential documents, and the Records Locator section should clearly indicate where the originals may be found, such as safe deposit box, file cabinets, computer, etc.
3. Safe Deposit Box Information: This section should tell where the safe deposit boxes and the keys are located, along with  a detailed list of contents.
4. Emergency Instructions: This may very well be the most important part of your Family’s RED NOTEBOOK. Both spouses should write detailed instructions about what to do in the event of a family emergency, such as death, illness, disaster, etc. Your instructions should contain information about obtaining emergency cash for living expenses, people to contact, people to seek for help, and also people to avoid.
5. Funeral Instructions: Each member of the family, including children, should write detailed instructions of how they want to be remembered. The wording of the obituary, choice of music, pall bearers, type of service, etc. are highly personal choices that should not be left to the emotions of the moment. Cemetery plot and pre-need funeral arrangement information also belongs here.   
6. Copy of Wills and Trust Instruments.
7. Copy of powers of attorney, living will and advance health care directives,  birth and death certificates, adoption information, etc.
8. Copy of deeds to real property, and mortgage documents.
9. Employee Benefits: Information and current statements for 401(k)s, profit sharing and pension plans, group insurance benefits, etc.
10. Personal Investments: Information on brokerage accounts, mutual funds, IRAs, annuities, etc.
11. Life Insurance: Copies of policies.
12. Property and casualty Insurance: Copies of policies.
13. Income Tax: Copies of last 2 years’ returns and information on location of tax records.
14. Bank accounts.
15. Debt and Credit Card Information.
16. Personal Financial Statements.
17. Businesses: Information on family owned businesses, such as buy-sell agreements, partnership agreements, corporate documents, etc.
18. Veterans’ Benefits
19. Medical Information: Medical history for family members, health and long term care insurance information, etc.
20. Miscellaneous. 

By giving your spouse a RED NOTEBOOK, and keeping the information current, you are sending a clear message that says: “I love and honor you and want to protect you from the threat of financial uncertainty if something suddenly happens to me.” You could not give a finer present for Mother’s Day or Father’s Day. A RED NOTEBOOK makes a wonderful  present for grandparents and adult children, too!

When should I be concerned about estate planning?

 Right now.

At the very moment you read these words, you should be concerned about estate planning. Far too many of us neglect estate planning, thinking “my estate is too small.” Regardless of the size of your estate, it can benefit from thoughtful  and  inspired planning. The main concern of estate planning should be people first, and assets and taxes second. The people we are talking about are you and your loved ones. When most of us think of estate planning, we think of inheritances. An inheritance is what one person receives from another. It can be property, values, culture, or traditions. Inheritance is more than the transfer of land and other forms of wealth from one  generation to the next. It is also the transfer of heritage, love, and values. However, as we are all concerned with meeting the physical needs of our loved ones, the estate planning discussion typically begins with a discussion of our property and what we want to do with it.

Here are some of the many considerations in estate planning: wills, trusts, durable powers of attorney, living wills, advance directives, probate, life insurance, joint ownership, estate, inheritance and gift taxes, generation skipping taxes, income taxes, pensions, 401(k)s, IRAs, Roth IRAs, lump-sum distributions, executors, trustees, guardians for minor children, special needs beneficiaries, powers of appointment, special valuation of farms and businesses, collectibles, charitable giving, beneficiary designations, family limited partnerships, annuities, asset protection planning, disability, long-term care, Medicaid planning, buy-sell agreements, spend-thrift provisions, etc.  While the list is extensive, all of us can find some areas that touch our financial lives.  While the estate planning process is crucial for the financial well being of our loved ones, it need not be
intimidating.

The essential task of estate planning can be addressed in four phases: Identify, Plan, Implement, Review.  In the Identification phase, you should meet with a trusted financial advisor who will help you identify your property and help you clarify your goals and desires for using it to benefit your loved ones and other interests, such as charity.

In the Planning phase, your advisor will help you develop a written estate plan.

In the Implementation phase, your advisor will work with you and  your attorney in taking action steps to arrange your finances and property  to meet your goals.  For example, in this step you might sign wills or other estate planning documents. 

The final phase is  Review, and it is crucial, for estate planning is  a process  rather than a one time event. Your estate plan should be reviewed  when there is a significant change that affects your life. This could be the birth or death of  a loved one, a change in career, family, income, or health, a new tax law, etc. You should meet with your advisors to review your estate plan when these events occur.