Clients often fall into two categories: those who want their children and loved ones involved in their estate plan and those who simply do not. When asked which is better, my answer is often “it really depends on your family dynamics and circumstances.” I typically believe that as people age, greater communication and understanding of the situation by my clients’ family and children is helpful in the event of an emergency or upon one’s passing. However, learning of a windfall inheritance, for example, can do “funny” things to people. In rare circumstances you will hear stories of elder financial abuse being committed by “trusted” family members. If you are planning to discuss your estate plan with your children and/or loved ones, here are a few tips I can share:
1. Communication helps set expectations
One of the biggest challenges in estate planning is that each generation has different values, investment priorities and expectations as to who should be involved in the safeguarding and distribution of assets after a parent or loved one passes away. It is important for you to communicate your goals and wishes to your children and loved ones who will be handling your affairs in the event of your incapacity or death. For example, if you have four children and are only choosing two to act as Co-Executors, it may be helpful to explain why you are choosing those children: perhaps they are geographically located near you, or perhaps you are appointing your executors in age order or based on their knowledge of financial matters. Similarly, setting expectations for how you would or would not want your money spent in the event of incapacity can be extremely helpful to your appointed agents and successor trustees so they can ensure your wishes are followed. The same can be said for medical decision making and communicating your medical wishes, conditions, medications and doctor information to your agent named in your health care proxy.
2. Communication avoids need to first locate assets upon incapacity or death
When you do not communicate what your assets are to those who will be receiving and/or able to access your assets upon incapacity or death, it immediately creates the issue of locating and marshaling your assets. By making sure that you keep an updated list of your assets, account holdings, contact information for financial advisors, accountants and attorneys you use, you will be helping set your family up for success when transitioning into a decision making role for you.
3. Communication can create tax efficient plans
Estate planning and transfer of wealth not only affect the individual creating the plan, but their children and future generations as well. For example, for individuals with larger and potentially taxable estates, transfer of wealth between generations may require information as to your children’s net worth in order to ensure that you are passing wealth to them in a tax efficient way. Lifetime Trusts or generation skipping transfers to grandchildren or more remote descendants may want to be utilized in order to avoid creating a tax liability for your children, especially when they have potential for a taxable estate due to their own personal wealth. Kicking the Estate Tax bill down the road should be considered.
4. Communication and access are not the same
Clients are sometimes concerned that by communicating their estate plan to their children they are giving them access and the ability to start “calling the shots.” Access to funds does not need to be given in order for family to be prepared when a loved one passes away or becomes incapacitated. The goal should be to ensure that mechanisms are in place and legal documents are executed to allow for access to be provided when needed. For example, a child does not need to be added as a joint owner on a bank account, but granting them Power of Attorney and the ability to make financial decisions when necessary may suffice. Additionally, the information communicated does not need to be extremely detailed. For individuals who are hesitant to share the details of their finances and net worth, it may be sufficient for them to simply state to their children / loved ones that they created an estate plan and named their children as those “in charge” if they were to become incapacitated or pass away. The children should then be given the contact information of the attorney who was used to create the estate plan and their parent’s accountant so they can obtain proper guidance when the time is right. Your attorneys and trusted advisors could also be provided a list of assets and additional information to share with the children.
In closing, while communication can be difficult, I have found that opening the lines of communication can set your family up for success during difficult times. It can also significantly decrease the likelihood of conflict, disagreements and disappointment when a plan is not what a loved one anticipated.
