One of the least considered aspects of estate planning revolves around family harmony issues. From selecting your trustee, dealing with blended family concerns to depriving your loved ones of ambition, an A+ estate plan considers all.
I need to consider who has authority in my documents…
Looking over my documents, I need to select the correct people to fill the roles of Trustee, Power of Attorney and the like.
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An adult child of a client who recently passed away contacted me to discuss what she was to receive from her mother’s estate. She had no idea what mother owned, or what anything was worth. She only knew that our office prepared the documents, and that her mother directed to call us when her time came.
Much to the daughter’s surprise, not only was she one of her mother’s beneficiaries along with her siblings, we informed her that she was named as the successor trustee to the trust.
“What does that mean?” she asked.
It means a great deal of responsibility was coming her way, if she chose to accept the appointment as trustee. Upon the creator of the trust’s death (in this case, the mother), the successor trustee must gather and obtain date of death values for all of the trust assets, protect the assets, invest the assets in a prudent manner during the estate administration, satisfy the claims of any of the deceased’s creditors, ensure that all proper taxes are paid, reserve amounts for administrative expenses, and eventually provide an accounting to all of the trust beneficiaries before making final distribution of the assets in accordance with the will and trust.
It’s a big job.
The trustee usually has the assistance of the attorney’s office, a tax return preparer such as a CPA, and an investment advisor. But not always. Some choose to prepare their own legal documents, their own tax returns, and manage their own investments. Increasingly, these tasks are all performed on-line with usernames and passwords. When this is the case, tracking down all of the information to even know where to begin can be a herculean task.
Even when the deceased engaged a good legal, tax and investment team of professionals, it’s the successor trustee’s duty (or where there is only a will and not a trust then it is the personal representative’s duty) to forward the information to the proper professional so that the tasks at hand get completed competently and timely.
When you name one of your adult children to perform these duties, it is almost unfair of you not to have at least a basic discussion with your adult child as to what your estate consists of, who constitutes your team of advisors, and where bank, brokerage statements, insurance policies, deeds and tax returns might be found.
You should also know that the successor trustee has personal responsibility and liability when carrying out her duties. If, for example, she didn’t act quickly after your demise to meet with the financial advisor and consider which assets pose an investment risk, should the stock market drop twenty percent the other beneficiaries could have a negligence action against her. This is because your assets received a “step-up” in tax cost basis at your demise, eliminating capital gains exposure. Most estate and trust administrations are completed within a year’s time, so it isn’t often prudent to “ride the market” during such a short term.
The prudent thing to do is to invest in stable cash-equivalents to guard against market decline during the few months that the administration is in progress.
The trustee is also responsible for ensuring the assets are properly insured and accounted for. She may have to go so far as to change the locks on the residence to keep others from gaining access and taking valuable (or sentimental) personal property such as jewelry, artwork, furniture and other objects before she has the opportunity to inventory them and determine who would be the rightful beneficiary of each such item.
I had one file where the trustee gave the deceased’s automobile to her son, who then got into a car accident before the title was transferred. No one checked to make sure that the automobile insurance remained in place. The resulting accident caused great distress when the plaintiff sued the estate for damages, subjecting the estate assets to the loss.
The trustee also finds herself personally liable to creditors and taxing authorities. If she has made full distribution of the assets to all of the beneficiaries, and a surprise claim or tax bill surfaces, the trustee must pay the creditor or taxing authority from her own pocket if she can’t get the beneficiaries to refund their portion of the liability.
As you can see, naming anyone, including your adult child, imposes a great amount of responsibility on them. It’s always a good idea to communicate with your loved one explaining the duties, role, and your expectations before naming them in your legal documents.
When naming spouses, children or other loved ones to serve as trustees in your testamentary (after death) trust or trust shares, consider a recent case where an estate trustee who took an “egregious” position in litigation has been ordered to personally pay more than $140,000 in costs.
Lawyers say the costs decision in Craven v. Osidacz is part of a growing body of case law that says executors need to be cautious in how they conduct themselves in litigation, and, if they are not, they’ll be ordered to pay costs personally. Before someone takes on the role of an estate executor, personal representative or trustee, the party should know that they may have exposure to significant personal liability rather than assuming that their costs are all going to get paid out of the estate.
Historically, in estate dispute matters, courts order costs to be paid from the estate, but they have been shifting away from this in recent years whenever executors have engaged in unreasonable conduct during litigation. The case I refer to above concerns a claim for damages by Julie Craven after her estranged spouse, Andrew Osidacz, stabbed their son to death and threatened to kill her before he was shot to death by police in 2006.
The deceased husband’s brother, Michael Osidacz, became the executor of his estate. Craven brought a wrongful death suit against the estate as well as a claim for damages, as her deceased spouse physically assaulted her before they separated. The litigation dragged on for a decade, ultimately ending in May with a $565,000 judgment in Craven’s favor.
The Superior Court Justice found that Osidacz acted to carry out a vendetta against Craven to limit the compensation she would get from the estate and that he submitted “virtually no evidence” in the estate’s defense. “His actions went far beyond ‘misguided litigation’ and amounted to harassment of another party,” the decision read.
Craven sought more than $156,000 in legal costs.
The Judge ordered the estate trustee to pay costs personally on an elevated basis, as his conduct was “foregoing, reckless and egregious.” Osidacz will also be required to pay his own costs in addition to an order to repay the estate legal costs. The decision serves as a stern warning for estate trustees to make sure they seek direction from the court and look to resolve matters at a very early stage.
This case is a good example of how litigation can become expensive, and it is therefore important for lawyers and the fiduciaries acting for an estate to consider putting evidence before the court in a non-contentious manner, because, if they’re unsuccessful, costs might be awarded personally against the estate trustee. To that end, many courts order the parties to engage in mediation in an effort to resolve disputes without trial.
While the extreme facts of this case don’t necessarily make it precedent for all matters where an executor/trustee unsuccessfully challenges a claim, it does offer a cautionary warning. I should note that this case originated out of Ontario, Canada and is not from the United States. Nevertheless, the warning is clear: unreasonable conduct on the part of an executor/trustee may lead to personal liability.
Most estate trustees go into litigation thinking that they’re going to get all their costs paid out of the estate and it’s not going to cost them anything. As this case demonstrates, that’s not always the case.
This is a broad warning not only to those who take on the office of executor or trustee, but also speaks to the choices that one makes when naming their successor trustee. I have written a new book Selecting Your Trustee that delves deeper into these issues. I’ve found that many clients don’t fully understand the responsibilities associated with serving, and therefore don’t always make good decisions. This book provides guidance. For more information contact my office.
A client, “Alec” discussed imposing a third party trustee on his son “Terrance’s” inheritance, while leaving his daughter in charge of her inheritance without imposing a gatekeeper of any kind. Alec worried that the substantial sum he was going to leave his son would be squandered without proper supervision.
“Tell me about Terrance,” I asked. “Why do you feel it necessary to have an independent trustee watch over his investment and distribution decisions?”
Alec sighed, frowned slightly, then began. “He takes a lot of risks. Extends credit, and it makes me nervous that he’ll leverage whatever he receives from my estate when I die.”
“Why does it make you nervous?”
“I never bought anything other than my house that I couldn’t pay cash for,” Alec said. “Cars. Vacations. You name it. I didn’t buy it unless I had money in the bank first.”
“And Terrance?” I asked. “He extends himself often?”
“Yes. He owns four different businesses and went deep in debt to finance the acquisition and expansion of each.”
“Has Terrance found success?”
“Oh for sure!” Alec responded. “His restaurants got Silver Spoon ratings and are always booked solid, his other businesses have done equally well.”
“So it’s not so much that he is irresponsible with money then, is it?” I challenged. “To me it just looks like Terrance has a much higher risk tolerance than you do.”
“Yes, I suppose that’s true,” Alec said. “I’m just worried that one day he won’t be so lucky and it crashes down on him.”
“Are you sure that you want to impose a gatekeeper on Terrance’s inheritance while his sister won’t have any obstacles to using her inheritance from you as she sees fit? Won’t that cause Terrance to wonder how you felt about him? Is that the last words you want to leave to him?”
These questions seemed to hit home. “I guess that’s not such a good idea,” Alec pondered. “But it still worries me that he could lose any inheritance I leave him to creditors or business disputes with his partners.”
“We can protect what you leave him by creating a testamentary trust inside of your estate plan. He could name a co-trustee if a problem arises who can act as an independent trustee, but that would only occur if Terrance becomes subject to a lawsuit or other money problem.”
“That sounds like a good idea, but will he understand it?”
“Yes, we could certainly explain how it works. He’s in total control unless an issue arises, at which point he would want the protections.” I said.
Alec seemed somewhat relieved. “I didn’t know that was even possible inside of an estate plan. But Terrance and I have never even discussed my net worth or how I plan to leave anything to him.”
“Do you think if he knew what you had that he’d have expectations of lifetime gifts or other handouts?” I asked.
“Probably not.” Alec said.
“Well, it might be time to have a serious discussion with Terrance,” I suggested. “He’s a successful man who seems to understand business. He’s certainly had lawyers help him with bank loans and negotiating leases. Why not give him the benefit of the doubt and have an adult conversation with him about your worries and expectations?”
Alec’s situation is an illustration of many different real life stories I’ve heard over the years. Using credit is much different today than it was a generation ago. It still carries great risk, and there are ways to protect your adult children from losing the inheritance you might leave them should a business decision go bad.
Nevertheless, when your adult children act responsibly, it makes sense to discuss your concerns with them. If you create an estate plan that helps protect them, my suggestion is to discuss what you did and why you decided to include certain provisions.
Communication is key. Hopefully if you open up, then your adult children will also open up about their own concerns. That conversation might even lead to even better ideas to consider. These are not easy discussions but the families that are so willing to engage usually have successful outcomes because the expectations are clear.
When you have a revocable living trust, you typically serve as your own trustee. Upon your inability to serve as your own trustee, you name a successor trustee. While many trusts contain provisions regarding how a trustee no longer serves in the event of his or her disability, I’ve reviewed many trusts that don’t include removal or replacement of trustee provisions for reasons other than disability.
This is even more alarming when I ask my clients about the parties that they’ve named as successor trustees in their current trust documents. More often than not, my clients want to make a change. Sometimes the trustee that they’ve named has passed away, sometimes the financial institution no longer exists having been swallowed by a larger bank. It’s also common that my client no longer has a professional relationship with a financial institution named as trustee.
There’s nothing wrong with amending your trust to name a new successor trustee. Consider, however, that after you’ve become disabled or die, you can no longer amend your trust. What happens then?
Jim has a close relationship with his financial planner, Thomas. When Thomas changed firms, Jim moved his account since he wasn’t necessarily enamored with any firm so much as he appreciated Thomas’ wisdom and expertise. Jim named Thomas’ firm as the trustee of Jim’s trust. After Jim came down with Alzheimer’s disease, Thomas changed firms again. Jim could no longer serve as his own trustee, but Thomas’ old firm was the named firm to step in. Since Jim was incompetent he could not amend his trust again to remove the old firm and replace it with Thomas’ new firm.
Similarly, when Jim dies his wife, Jane, would potentially have to deal with someone unfamiliar with his financial plan. That is, unless Jim includes a provision in his trust that allows Jane (or someone else) to remove and replace the corporate trustee.
Jim’s revocable trust contains a provision that allows his spouse, Jane, to remove and replace any acting successor trustee. When Jim dies and his trust had the old firm still named, even though he no longer had a professional relationship with that institution, Jane could name the firm where their longstanding financial planner, Thomas worked.
The removal and replacement powers should be carefully considered, however. In blended family situations, a surviving spouse could be accused of shopping for a trustee most favorable to her situation instead of acting as an impartial fiduciary manner towards all of the trustees. In these situations, it might be best to require two individuals to remove and replace the successor trustee.
Jane is not the mother to Jim’s two sons, Zachary and Ethan. Rather than giving any one person the ability to remove and replace a successor trustee, Jim’s trust provides that during Jane’s lifetime, either Zachary or Ethan must join Jane in any removal and replacement of a corporate trustee.
Where the surviving spouse is serving in the role as successor trustee, this issue can become even more delicate.
Jim names Jane as his successor trustee, and Jane is the primary beneficiary of Jim’s trust for the remainder of Jane’s life. Jim trusts Jane explicitly, and does not want to cause conflict between Jane and his sons. Jim therefore provides that Zachary and Ethan must have “cause” in order to remove Jane as a trustee. “Cause” is defined as Jane being grossly negligent in the investment and management of the trust funds, or by making improper distributions.
Sometimes you will name a trustee for a child who has problems handling money, who may be a spendthrift, or who has drug, alcohol or gambling dependency problems. Here, the choices to be made are not easy.
At Jane’s death, Jim’s trust divides into separate continuing trust shares for Zachary and Ethan. Since Zachary is adept at managing money, Jim names Zachary to serve as his own trustee. Ethan, however, has been in and out of drug rehabilitation centers since adolescence. To protect him from himself, Jim named a corporate trustee to serve as Ethan’s trustee.
Here the issue is whether Jim should give Ethan, or some other person, the power to remove and replace the corporate trustee. Generally speaking, you never want to create a testamentary trust where the trustee cannot be removed. Financial institutions can change, merge with others, raise their fees or poorly perform with investments and administrative functions. When this is the case, you would want them removed.
But to give Ethan that power is problematic. He may shop for a trustee that will freely distribute funds to him, even though he intends to use those funds to support his drug habit. Giving that same power to Zachary poses other problems. What happens when Ethan asks Zachary to remove and replace the trustee and Zachary doesn’t see the need? Might this drive a wedge into their relationship? There are no easy answers here.
Every family’s situation will be different. That’s why I suggest that you explore these issues thoroughly with your estate-planning attorney who can draft appropriate provisions into your legal documents.
I have a blended family…
As a result of a second marriage, adoption or other circumstances, my family situation is blended and may require some sensitivity.
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From time to time a client will not tell me about a child because they have become estranged, and they don’t want to leave anything to that child or to that child’s children in the estate plan. When I don’t know that the child even exists, problems can arise since it is usually proper form to mention the child and specifically disinherit him or her in the will and/or trust. Otherwise, the child might successfully claim a portion of the estate.
I suppose that some clients who fail to discuss the relationship do so because of feelings of guilt or shame. They might feel that they’ll be judged if someone knows about the estrangement. Other times it might be out of pain. The client doesn’t want to even think about the issue, so they would rather pretend that the relative doesn’t exist.
A recent New York Times article sheds some light on the subject. Broadly speaking, estrangement is defined as one or more relatives intentionally choosing to end contact because of an ongoing negative relationship. The article points out those relatives who go long stretches without a phone call because of external consequences like a military deployment or incarceration don’t fall into this category.
Lucy Blake, a lecturer at Edge Hill University in England published a systematic review of 51 articles about estrangement in the Journal of Family Theory & Review. This body of literature, Blake wrote, gives family scholars an opportunity to “understand family relationships as they are, rather than how they could or should be.”
As more people share their experiences publicly, some misconceptions are overturned. Assuming that every relationship between a parent and child will last a lifetime is as simplistic as assuming every couple will never split up.
Myth: Estrangement Happens Suddenly
It’s usually a long, drawn-out process as opposed to a single blowout. A parent and child’s relationship typically erodes over time, not overnight. It is usually an accumulation of hurts, betrayals and other factors that accumulate, undermining the sense of trust between family members.
Failure to visit a parent and then not doing so once that parent becomes sick and hospitalized, for example, can be the proverbial straw that breaks the camel’s back. A parent who cuts off a child financially while he is in college despite having resources can be another triggering event after a lifetime of perceived indifference.
Kristina Sharp, as assistant professor of communications studies at Utah State University states that estrangement is “a continual process. In our culture, there’s a ton of guilt around not forgiving your family. So achieving distance is hard, but maintaining distance is harder.”
Myth: Estrangement is Rare
In 2014, a United Kingdom study found that 8 percent of roughly 2,000 adults said they had cut off a family member. This translates to more than five million people. An additional 19% reported that another relative was no longer in contact with family.
In a 2015 Australian study of 25 parents cut off by at least one child found three main categories of estrangement. In some cases, the son or daughter chose between the parent and someone or something else, such as a spouse or partner. In others, the adult child punished the parent for “perceived wrongdoing” or a difference in values. Additional ongoing stressors like domestic violence, divorce and failing health were also cited.
In-laws who keep the grandchildren away were common issues, as were perceived slights over child-raising, house cleaning/maintenance and even cooking. These slights can escalate into feelings of cumulative disrespect between the parties.
Myth: Estrangement Happens on a Whim
In another Australian study, 26 adults reported being estranged from parents for three main reasons: abuse (physical, emotional or even sexual), betrayal (over secrets), and poor parenting (being overly critical, shaming or scapegoating). The three were not always mutually exclusive and commonly overlapped.
Most of the participants noted that their estrangements followed childhoods in which they had already had poor communications with parents who were physically or emotionally unavailable. One participant said that because he was always responsible for two younger siblings, he decided never to have children of his own. After years of growing apart, the final straw was his wedding day.
In 2014, he and his longtime girlfriend decided to marry at City Hall for practical reasons. He didn’t’ invite his family, in part because it was an informal gathering. But also because a brother had recently married in a traditional ceremony, during which is father backed out of giving a speech. He worried that his father might do something similarly disruptive, so he did not invite him or the rest of the family.
The family found out about the marriage on Facebook. One brother told him he was hurt that he wasn’t even told, and the sister messaged that she and the father would no longer speak to him.
These are all sad tales. It’s interesting that family estrangement is so common. But when planning your estate, it’s usually important for your estate planning attorney to be aware of these issues and to, as delicately as possible, include necessary language in the legal documents.
I don’t want to deprive my beneficiaries of drive and ambition…
I don’t want to instill a sense of complacency in my beneficiaries by leaving them an inheritance that makes them too comfortable.
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Despite earning more than $27 million in salary, and millions more in endorsements, basketball superstar and cultural phenom Dennis Rodman appeared in court three years ago because he was unable to pay $800,000 in past due child support. He claimed that he was broke.
Scottie Pippen, a teammate of Rodman’s on the Chicago Bulls championship teams, found himself near bankruptcy just a few years after his retirement despite career earnings in excess of $110 million.
A common theme amongst all of these tales is that those who earned and lost enormous sums had no prior experience with monetary success. Like a lotto winner, they suddenly found themselves bathing in millions. Unable to manage their newfound fortunes, and unable to create a high-quality vision of their post-athletic careers, these athletes lost what took them a lifetime of training, sacrifice and hard work to achieve.
There are lessons to be learned for those planning estates – even for those of more modest means.
Traditional estate planning works to divide financial assets among family members without considering the other things that lead to the success that generated the wealth in the first place. Speaking as one inside the industry, estate planning professionals have become very adept at economically dividing up the money amongst the heirs with little regard to transferring the intangible wisdom, values, experience and relationship assets to future generations.
What appears to be the philosophy underlying traditional estate planning? Beat the taxman and ultimately dump all you can on your heirs, regardless of their ability to handle sudden wealth. As we’ve seen with the athlete examples, an heir to an estate can, in a few years, wipe out what took a lifetime to create.
This is exacerbated when parents name their adult children, who often have no experience managing wealth, as direct beneficiaries without an intermediary. Why would Mom and Dad expect their children to act any differently with newfound wealth than do professional athletes? What leads them to believe that they won’t make unwise decisions when they have virtually no experience accumulating and managing wealth?
I propose an alternative solution. Name a corporate trustee such as a bank or trust company.
Many clients object to the thought of imposing a gatekeeper on their family’s inheritance. They’ve heard horror stories of inept financial institutions that charge high fees and dole out low performance. The trust instrument named a bank or trust company with no means to remove the institution, no matter their performance.
This can be easily remedied by allowing the family to remove and replace the corporate trustee with another one.
Yet another objection is the expense of a corporate trustee. I’ve written other columns explaining that corporate trustee fees are more reasonable than you might imagine. Many clients already pay brokerage fees or management expenses, inside of mutual funds for example. Often you are only exchanging one fee for another. Also consider how much the beneficiary may lose without proper guidance. How much is that worth?
And the corporate trustee does not have to be the sole trustee, nor does it have to be permanent. Naming a corporate trustee need not be an “all or nothing” proposition.
Consider an example where Mom and Dad name their daughter Amy to serve as the co-trustee with ABC Trust Company for a period of five years following the death of the surviving parent. Amy has the power during that five year period to remove and replace ABC Trust Company with another bank or trust company of her choosing.
What have Mom and Dad accomplished?
They’ve given Amy some direction with a professional institution how to begin to handle wealth, yet they have not shackled their daughter for the remainder of her life. She needs to work with a professional trustee for a period of five years following their death. She can learn how a professional invests, and makes distribution decisions.
During that five year period, Amy may remove the trustee selected by her parents with another trustee. At the end of the five year period, she can choose to retain the institution to continue to serve as a co-trustee, or she can take over the reins herself without a co-pilot. It’s up to her.
There are more ways to skin the cat than this. I’m just illustrating one alternative. In any event, when leaving your family wealth, remember the lesson of the professional athletes, and consider how to leave enough support behind to ensure a smooth transition of that wealth to the next generation.
You may be surprised to learn that more than 90% of American businesses are family businesses, according to Entrepreneur magazine. The term “family business” is defined as a non-publicly traded business that contains two or more family members.
It’s not unusual for a patriarch or matriarch to dream of one day including one or more adult children in the family business, especially if it’s successful. Many consider the business their legacy and are quite proud of it. Bringing in the next generation might be considered a logical step to solidify that legacy. Many of us know of family businesses that thrive for generations.
But there are many psychological, economical and relationship issues to consider when bringing loved ones into the fold. Is your adult child well-suited for the role that you expect her to play? What exactly is that role? Will she start from the bottom and work her way up, or will she immediately work from the executive suite? What is her educational and work experience to date? How will other key employees receive her? How has your relationship with that adult child been over the years? Can it survive working together?
Anecdotally, I’ve seen several instances of a child being forced into a role that he isn’t suited for. Dad, for example, might be great at sales, but Son might be better working in operations. When counseling family businesses, I usually suggest that all parties take certain aptitude and profile tests such as Strengthsfinder and Kolbe. Both provide valuable insight into a person’s proclivities.
Yet another issue to think through is who will train and mentor the young family member. Not only is it tough to mentor anyone, nonetheless your own flesh and blood, but you need to honestly assess your patience and tolerance as well as your adult child’s disposition and capabilities. Perhaps another person in the organization is better suited for this role? Are they willing to do it? Do they see your family member as a threat?
Sometimes the family business is used as a life preserver for a drowning family member. Drama often ensues when the family business is used in this manner.
Perhaps the child was fired from several jobs or has been unemployed for a while. The parents might believe that by creating a position inside of the family business the child will find a niche and thrive. This rarely happens. There’s usually a reason why Son or Daughter was fired from prior positions, and those reasons are likely to not only persist but also intensify in the steaming caldron of a family business.
I recently met with a client who owned a successful multi-million dollar operation that he took over from his father. “I thought one of my three children would one day run the shop,” he confided, “but none were really equipped to do so. I brought them all in at one time or the other, but when I did they started at the bottom and had to work their way on up to the top. None of them worked out. So eventually I sold the business.”
This client’s story is quite common. Success magazine recently published a report indicating that fewer than 15% of family businesses survive to the third generation. That statistic is important to note if you are the patriarch relying on future income of the business for your retirement.
Those family businesses that employ non-family members must be cautious as well. Long-term employees who are critical to the business’ successes may look askance at the youngster who hasn’t paid her dues but receives many privileges. This can create disharmony which can lead to the loss of those key employees. Consequently, it’s usually a good idea to communicate with those that matter, soliciting their input.
Non-family owners complicate matters as well. Here the ownership interests might be governed by shareholder or partnership agreements. Assuming that nepotism is not prohibited, bringing on a competent family member on one side might encourage other shareholders to ask the business to employ their own family members who may not be right for the role. Business owners would be wise to keep that Pandora’s Box closed.
As you can see, there are many issues to address prior to asking a loved one to join you in your business. Being intentional and thinking through the myriad of issues will assist in arriving at the best outcome, whether that result is bringing your son or daughter into the business or deciding against it.
Like many of you, over the past few weeks we entertained guests from northern locales looking for sun, beaches and good weather. While we enjoy having friends and family in our guest room, it’s also a very busy time of year for me and my practice, so I don’t get to take as much time with them as I would like. Consequently, when we first make plans we often make it a point to set expectations about how much time we’ll be able to spend together and suggest activities that our guests can enjoy on their own.
It’s all about setting expectations. Early communication usually sets the stage for a favorable experience for all.
Expectations are also important when communicating with your loved ones about your estate plan. Discussing one’s private legal and financial affairs is never easy. Consider the burden you could place on whoever is responsible to fill the legal role when you become disabled and are not able to manage your checkbook, investments and other day to day affairs.
I therefore encourage my clients to sit down with the party or parties who will serve as an agent under a durable power of attorney document, as your successor trustee of your trust and as personal representative under your will to brief them on your legal, tax and financial situation. This includes where your accounts are held and how you go about managing your assets. It’s a good idea to introduce your lawyer, accountant and financial advisor to your loved ones who you named to fill these important roles.
If you named a bank or trust company to serve as your successor trustee, it’s always a good idea to form some sort of relationship with them prior to requiring their services. If you are an investment do-it-yourselfer then you might consider working with your named bank or trust company on some portion of your portfolio to determine if you’re a good fit for one another.
To do otherwise with any of my above suggestions risks having a “transition in a time of crisis.” In other words, if the parties and professionals that need to be involved in the event of your disability are only called upon at the moment of your disability, everybody must get up to speed very quickly so that things don’t fall through the cracks. When you name a financial firm as a trustee, for example, and they have no prior history with you then they have no idea as to your investment goals, your risk tolerance, and your general philosophy. Once you become disabled, then you may have no way of communicating these facts to them.
If you’ve named a son, daughter or other loved one to fill this role, it can become equally difficult for them, especially if they have no idea as to your net worth, your estate plan, or any tax or other investment issues that you deal with on a day to day basis.
Many clients fear sharing this confidential information, even with their closest relatives. A major concern is that in revealing your wealth, certain gift or other financial expectations arise. If this is an issue, then perhaps you haven’t named the right parties as your durable power of attorney or as your successor trustee.
More delicate issues arise in blended family situations. When your will or trust continues to benefit your spouse with the remainder interest left to family members not of your current marriage, then you are financial marrying these individuals to each other, often for the remainder of the surviving spouse’s lifetime. Setting expectations in this situation is crucial. If your spouse is your primary concern, it always helps to voice your intent to those affected while you are alive, healthy and competent. Don’t just leave it to the cold words of a legal document. If you aren’t comfortable revealing the extent of your finances, then at least express your intentions in broad terms to squelch future problems.
Communicating and getting ahead of any difficulties is always a good idea. And what’s good for the goose is good for the gander. The conversation should be just that – a dialogue rather than a lecture. Take the time to listen to any concerns that your loved ones might have. After learning of those concerns it might mean a needed adjustment to the course.
Now that summer-like weather is almost upon us, our guests have fled. But that means we may spend a little time up north to enjoy their nice weather. I wonder who might have an available guest room.