Wednesday, March 19, 2008

Children and the Estate Planning Process

Many clients come into my office to do estate planning with the express intention of making their estates as easy as possible to settle, often out of thoughtfulness for their children. It is ironic, then, that some of the same people have difficulty in deciding on the specifics of an estate plan because of concerns about their children’s feelings. To what extent should your children, or your concerns about your children, factor into your estate planning?

Two important principles come first: the first is that your estate is yours, and you may do with it whatever you choose. Obviously, promises made to a deceased spouse should be honored; otherwise, your options are open. The second important principle is that sticky issues, with children or otherwise, should not prevent anyone from establishing at least a basic estate plan. Even one that is not completely perfect is still preferable to the chaos caused in a family by someone dying intestate (without a will).

While your children may not be able to immediately see the validity of your estate planning choices, you know your family situation, and you know the strengths and weaknesses of each of your children. My major goal in estate planning is trying to preserve the harmony in my clients’ families after they are gone, so I feel that it is important to discuss some issues that arise when dealing with children in the estate planning process, and some potential ways to resolve the problems.

Do you need to give copies of your estate planning documents to your children? In general, my advice to my clients is not to give the kids copies. Giving the kids access to your plans may seem to them as if you are asking for their approval. Not only might this make your kids see you as less than in control, it also opens a door to their critiquing your plan. Also, some clients view showing their plans to their kids as a tacit promise that this is the way the estate will be divided, and then are reluctant to amend the documents when changes are needed. To make sure the kids have your documents when you need them to have them, simply tell the kids that your important papers are in a particular location (such as your safe), and that they can get them if they need to (i.e., you are in the hospital), but, in the meantime they are to remain private.

Does each of your children need to have equal opportunity to act under your estate plan? Often clients want to name one child as successor trustee, one as agent under the financial power of attorney and one as agent under the medical power of attorney, so they are being “fair” to each of the kids. While I believe in giving each responsible child a say in the settling of a parent’s estate, the goal in choosing your trustee/ executor/ agent has to be to have your best interests served. If one of your children is disorganized and/ or does not manage money well, naming him or her as financial agent / executor/ trustee is asking for trouble, both for the child and for yourself. Looking at each of your children’s strengths will help you make the right choices. Choosing a child who has the respect for you to carry out your wishes is also important. If you cannot decide, ask your estate planner for advice- he or she has probably seen other families grappling with the same questions, and can guide you in your choices. For instance, if you have three or fewer children who all get along, you may want to name them as co-successor trustees/ co-agents/ co-executors. Then they can divide the work involved among them as they choose, and everyone gets a say.

What do you do when a child won’t discuss any estate planning issues with you? This is a tough, but fairly common, problem. Often a child’s reluctance to discuss estate planning is caused by discomfort with the idea of the aging and eventual death of the parents. The aging parent, however, needs to know that the children are willing to help when needed, whether taking a non-driving parent on errands, or acting as agent under a medical power of attorney. In this situation, communicating to each of your children, either verbally or in writing, the immediate age- related concerns that you have, and that you need to have a plan in place to deal with the lack of control that is inevitable, may help. Letting the children know that you are going ahead to establish a plan, with or without their input, often opens the door to communication.

What do you do when you want to divide assets differentially between children? Many family situations seem to call for differential division of an estate. Sometimes one child is disabled, and incapable of being fully self-supporting. Sometimes parents have spent much more on one child in life- paying for an expensive education, purchasing the child a house, or lending them money to start a business. Many times, one child is the “primary caretaker” of the elderly parents, and the parents would like to reward the efforts of this child. Whatever the reason, there is no rule stating that you must divide your estate equally among your children. The key to family harmony here is to explain to the kids, generally in a letter attached to your will or trust, your reasons for the distribution you have chosen. Reminding your children that you love them all equally, and that your estate is yours to divide, also can help.

What do you do when you want to leave assets in trust for a child? There are many reasons for leaving an inheritance to a child in trust for his or her benefit. Maybe the child does not manage money well and the parent is concerned about the child’s having money in his or her retirement years. Sometimes a child is young, and the parent is concerned about their ability to handle an inheritance. Often a child is in an unsatisfactory marriage, and the parent is trying to prevent the inheritance becoming part of a divorce settlement. Whatever the reason, a trust is often the means to protect a child’s inheritance, but can insult the child in question. An explanation of your reasoning (and, again, a reminder that your estate is yours to distribute as you please) may be in order here, to let the child know that you are thinking of his or her long-term interests. The other possibility is to structure the child’s inheritance so that s/he receives a free-and-clear-of-trust gift at the time of your death, with the remainder of the inheritance remaining in trust.

Anytime we have children, life becomes complicated. These issues, and others, can play a large part in determining the specifics of an estate plan. The key is not to allow these issues to prevent your creating an estate plan, as the lack of one can create even more divisive problems within a family. A good estate planner will work through family issues with you, giving you the benefit of having seen similar issues in other families, and will help you to work out solutions that will help in your particular family situation.

No comments: