We often talk about the risks of not planning, as there are many. The WSJ recently published an article “How to Keep Your Estate Plan From Tearing Your Family Apart” by Jonathan I. Shenkman which has the tag line of “It’s often the stuff you haven’t even thought of that can create the biggest divisions.”
One of the opening lines is “inheritances spark disputes over issues many families rarely consider in advance — such as caregiving, prior financial assistance and other family dynamics.” We couldn’t have said it better. The article is framed around the risks but also highlights the wins and rewards of good planning, and these should be noted, too. To the article:
- Pay caregivers in real time - A child who spends years providing hands-on care to a parent (or both parents) often sacrifices income and career advancement in the process.
- Log each lifetime gift in a shared place - School tuition payments for children and grandchildren, down payments for home, and business loans made to one child years earlier are common sources of disputes among heirs.
- Consider account type and asset class - Two heirs can inherit equal gross amounts and walk away with very different net outcomes depending on which assets they receive.
- Set structure, not just a dollar amount - Matching the structure of the inheritance to heirs’ individual circumstances can be more valuable than equal treatment.
- Write down and discuss intent - Ultimately, one of the biggest predictors of postdeath conflict is whether inheritance decisions were explained before death.
Let’s assume your family followed all of these best practices. What could that look like?
- Pay caregivers in real time - Typically the eldest daughter, her income, her retirement investments, and her portion of the estate remain intact while serving the greater family which leads to less resentment and more equitable family outcomes.
- Log each lifetime gift in a shared place - Intrafamily Loans and Intrafamily Gifts fully documented and accounted for ensure that everyone knows the actual plan, constraints, and realities of the estate.
- Consider account type and asset class - The tax rules and net amounts derived from the assets are what really drive an equitable distribution, and being balanced here reduces family conflict.
- Set structure, not just a dollar amount - Not every heir needs the same amount of support or help, so focusing on the How rather than the How Much again reduces family conflict.
- Write down and discuss intent - Crisp, clean, and transparent communications, at least during the Family Board Meeting if not more often, will help everyone understand the plans, goals, and future state.
Do you have to do all of these things? Nope. Do you really want to find out if you don’t? Nope. But rather than scare families into doing the right thing, let’s reframe estate planning as growing our family wealth and enduring our family legacy. We can get our work done so that we can enjoy our time together. We can help ourselves and our families. We can move ourselves forward…