Don’t be alarmed – “the talk” in the caption refers to trust and estate matters! The question of when people should talk to their adult children about their estate plan (Wills, Living Trust, etc.) is an interesting one that is frequently asked by clients.
No universal answer exists because everyone and every family is different, and it depends on the circumstances. Many factors need to be weighed. These may include: the age and maturity of the children; whether or not parents are treating them equally in their Will or Living Trust; whether one, but not all of the children are nominated to serve as the Executor and/or Successor Trustee; and many more.
In a recent Wealth Management section of the Wall Street Journal, an article by Veronica Dagher entitled “Time for the ‘Estate’ Talk”, she outlined five reasons why parents should discuss their Wills with their children. These were: 1) You’ll have a chance to smooth ruffled feathers; 2) You’ll save them hassles and prevent mistakes; 3) You may increase their quality of life now; 4) The children might give you a better idea; and 5) You may save them some taxes.
I’ll address reasons one and four above, focusing on concepts I’ve found helpful to my clients. The first – smoothing ruffled feathers – is often not applicable because most parents provide for equal distribution of assets to the kids. But when it is applicable – for example, when your Will or Trust provides for unequal distributions to the children; when specific tangible, cash or real estate distributions are being made to certain but not all children or to other third parties; or when a loan to a child is being forgiven – it weighs heavily in favor of talking with your children as soon as you feel it is appropriate to do so.
Let’s start with this fundamental notion – you can choose to do whatever you want with your assets upon your death, right? Of course! Nevertheless, your children may not perceive it that way; in fact, they may be very upset upon learning of your decisions. Their reaction may ultimately result in friction among the children or one or more of your children resenting another child who may be seen as receiving undue favoritism.
Wouldn’t it be better to communicate about such potentially sensitive issues during your life than leaving your children with no explanation, leading to anger and/or guilt when you’re gone? Even if one or more children come away from such discussion believing your decision is unfair or disappointing or illogical, at least they’ll know what to expect and have some basis for understanding why you made your decisions.
Reason number four – the kids give you a better idea – is compelling. Open-minded parents typically acknowledge that they learn a great deal from their children. By sharing the more important components of your estate plan, one or more of your children may be able to make valuable suggestions that you never considered.
Well-intentioned clients sometimes request Living Trust provisions that are based on misconceptions about what their children want. Other times, people make their plans impractical or unnecessarily complicated.
A client recently asked me to draft a fairly complex Living Trust under which one of her two children (I’ll call her “Mary) – the less financially successful one – was to receive a lifetime interest in my client’s home along with a certain amount of funds toward property-related expenses. The other child would receive a much smaller amount of cash and securities. I pointed out many issues, including that this provision would render a substantial amount of home equity tied up in the home that Mary might (or might not) live in for many years. As my client struggled with many questions I asked about possible conditions and contingencies that would need to be addressed and drafted, I recommended that she first do a “reality check” by discussing these ideas with her children. She did so and was surprised to learn that Mary had no plans to stay in the area and she preferred to receive cash from a sale of the home on her mother’s death. My client was relieved and we were able to draft a much simpler document that would serve my client and her children well.
Although “having the talk” may not be perfectly comfortable and stress-free, discussing your estate plan with your children is not a subject to be taken lightly or ignored.
This article is intended to provide information of a general nature, and should not be relied upon as legal, tax, financial and/or business advice. Readers should obtain and rely upon specific advice only from their own qualified professional advisors. This communication is not intended or written to be used, for the purpose of: i) avoiding penalties under the Internal Revenue Code; or ii) promoting, marketing, or recommending to another party any matters addressed herein.
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