Often, one of the hardest decisions people make in the estate planning process is how much (and when) to tell their children or other heirs about their plans.
There’s no single right answer for everybody; what to do depends on the nature of your planning and your family circumstances. But it’s worth giving the issue some consideration.
Many people are very hesitant to reveal the details of their family’s expected inheritances. A recent survey by UBS of almost 3,000 investors showed that only 54% had discussed their estate plans with their heirs, and only 34% had mentioned specific dollar figures.
Many parents say they fear that if their children find out they can expect a substantial legacy in the future, they’ll be less likely to work hard and save in the present.
Another worry is that revealing an estate plan could lead to family squabbling and resentment. This is especially true if you plan to leave unequal inheritances to family members.
Imagine a family where one child is a successful banker while the other earns little money but does socially valuable work for a non-profit. If the parents leave more money to the poorer child, the banker might feel resentful and unloved. But if they leave everything in equal shares, the poorer child might feel slighted and misunderstood. Many families will simply avoid talking about the subject in order to keep peace.
If there’s a blended family with children from a prior marriage, things can get even more complicated.
But while it can be difficult, there are also some very good reasons for having a detailed talk with your family about your estate plan.
For one thing, if there’s a chance of family squabbling and bitterness, it can be better to tell everyone what to expect now, while you’re still alive and have a chance to explain your motives and smooth things over. You could explain, for instance, why you’re leaving more assets to a child with a large family than to a child who is single, or why you’re leaving money to a charity that has always been important to you.
In fact, the UBS survey showed that heirs who weren’t told in advance about inheritance arrangements were more than twice as likely to be unhappy about them afterward.
Another thing to consider is that, if someone dies suddenly, the family is often left very confused about finances. They don’t know what assets there are or where they’re located, and searching for them can be extra stressful when the family is already suffering the grief of losing a loved one. If you discuss your assets and your plan now, so that everyone knows what to expect, it can make things much easier after you pass away.
In addition, many parents who talk about their plan with their children are surprised to discover that their children sometimes have good ideas. If a family owns a vacation home, for instance, the parents might have one thought about what to do with it, but the children might come up with a plan that better protects the home and better suits their future needs.
Talking with your children also allows you to coordinate your estate plan with your children’s own estate plans. You might discover, for instance, that the whole family can save taxes if you give more assets directly to your grandchildren, or create trusts for your children instead of leaving assets to them outright.
The O'Bryan Law Firm Approach:
Feeling reluctant to talk to your children about money, death, or incompetence is a common occurrence among clients. Many people feel the need to keep their business and their plans to themselves. Such wishes are to be respected. However, since children are the most likely people to deal with the situations afterwards, it may be a good idea to provide some information. We generally counsel clients as follows:
We think you should conduct a family meeting. The meeting should have the following agenda:
Explain that you have created an estate plan, and show the person in your family you selected as trustee the location of your estate binder. Detail the location:
(a) all important documents
(b) logins and passwords to financial accounts
(c) life insurance contact information
(d) location of financial assets
(e) listing of trusted advisors
(f) beneficiary designations for all insurance and retirement accounts
Share Basic Information. Even if you do not want to share your net worth with your children, let them know that you have completed your estate plan and that you are on top of things. Providing a general outline of events leading up to distribution of your estate and afterwards, along with addressing tax issues will provide them a basic description of what to expect and will help to alleviate fears and concerns. Doing this can be as simple as saying: "We have just written our wills and I think you should know that your share comes only after both of us are gone. We considered the tax issues and have tried our best to reduce the taxes as much as possible but our own security is most important."
Provide a Working Outline. Your children do not need to know everything, but they should at least know of the existence of assets or liabilities without the details. Compile a list of your bank accounts, brokerage accounts, retirement accounts and IRA's, annuities, leases or contracts, real property descriptions and insurance policies, together with a summary of long term obligations such as mortgages. The listing should include the account numbers and the name of the broker or agent that you work with. If you have designated a beneficiary or joint owner of the asset, that information should also be included. If you own life insurance policies, you should indicate the location of the original policy. Review and update the outline often. Either give the outline to your children or tell them where it can be found. Make sure that the location is accessible to them. A safe deposit box is not the best place to keep this outline unless you are certain that someone is listed as a co-owner or deputy on the box. If you have a safe deposit box or personal security box, share the location of the box and the key or the combination. It is most distressing to find a safe deposit box key and not know what it fits.
Inventory Your Personal Items. Although the personal property that is to be divided may be small in value, certain personal possessions can have sentimental value and be very important to your family. Talk to them about the hardest assets to divide such as your furniture, jewelry, silver and special family items. Make a list of these items and share it. Try to assign items by making a memorandum directing the disposition of the most important of these items. It goes without saying that there is much emotion following a death. Since one of the first things that happen is the division of personal property, the smoother this goes the better and the rest of the process should be much easier.
Designate Your Helpers. While estate planning involves preparation of assets following your death, it also includes establishing a procedure for managing your affairs in the event of your incapacity. The person you select as your trustee has many duties, including managing your property after your death, filing your final income tax returns, paying your debts and funeral expense, filing your tax returns and distributing your assets to the beneficiaries named in your estate plan in the manner you describe.
If you have not signed a valid will or trust agreement, then an administrator is selected by the probate court from a statutory list of people who may have an interest in your estate to perform these duties and distribute your property to your intestate heirs.
In the event of your incompetence, your property is managed by an individual appointed by you as your power of attorney. If you have not appointed a power of attorney, a guardian is appointed for you by the court. If you execute a power of attorney, it is not necessary to limit the appointment to one person as two or more may serve together and you may name substitutes to serve in the absence of the primary power of attorney.
The written power of attorney document provides the extent of the authority given to your power of attorney. The authority may be very broad and sweeping or limited to a specific transaction or account. The power of attorney may also contain conditions or limitations under which it may be used. It is common to find that a power of attorney be effective only after your attending physician and one other physician determine that you are unable to handle your affairs.
There is also a statutory provision available in Michigan that allows you to designate a health care advocate by signing of a health care power of attorney. This agent is given the authority to make health care decisions for you if you are unable to make them for yourself. This person may consent to medical procedures, hire or fire physicians, authorize the disconnection of life support if appropriate and provide for organ donation and the disposition of your remains.
Michigan law also allows you to appoint a health care agent for a minor child in you absence. This is desirable if you will be away from you child for a vacation, or if your child is traveling without you.
Once you have designated you helpers, share the names of these appointments with your family. It is also a very good idea to give your children and other close family members copies of the powers of attorney and let them know what you have done.
Update Documents. Even if you do not want to share the details of your will with your children, they should know that it exists, where it is located, and that it is up to date. If you have executed a living will, which is an expression of your wishes concerning life support and treatment in the event of a terminal illness, it is very important that copies be provided to all family members who would be involved in your care. If you have executed trusts to provide for the disposition of your property, copies or duplicate originals should be provided to each of the named trustees and successor trustees and each should know where to locate the original. Copies of amendments should also be provided as made.
Consider Full Disclosure. The decision of sharing the details of your estate is yours alone and if you decide not to share those details, it should be honored. Be aware though that surprises can cause tension and uncertainty during a time when your family is emotional and needs to feel most secure. Try to avoid those surprises and the possible conflicts. Start with your personal property. Let your family know that you love them, who is going to be in charge, and what you have planned for them. Avoid the tension and the conflicts while you can.