All good wealth management includes estate planning as a component. Changes in the tax laws, modern trust conventions and family changes make periodic reviews of estate plans a real necessity. While the contemplation of your eventual demise is never at the top of anyone's list, there is satisfaction from the feeling that you have taken care of issues and provided for those you love. But unwitting mistakes can wreck your careful planning and even lead to family fighting and estrangement of the very people you hope to benefit.
The suggestions listed below are designed to maximize the
likelihood that your estate plan will not only benefit your heirs
but keep them talking to each other after you are gone.
- Don't Keep Your Estate Plan a Secret:
While there is no need to involve your family in planning how your
estate will be distributed, there is great utility in telling them
exactly what they can expect before you pass away. It allows them
to ask questions, understand your reasoning and avoids unpleasant
surprises. Sharing your plan may cause animosity now, but you can
address it and make appropriate changes, if needed. Your estate
plan should include a mechanism for dividing family heirlooms,
which can carry a bigger emotional component than cash.
- Treat Your Children Equally, Even When There Has Been a
Falling Out: People tend to see inheritance as the
ultimate litmus test. Or as the singer Jewel aptly crooned
"you know you love him if you put him in your will." If
you disinherit one of your children, you can expect that he or she
may sue, causing the estate to incur costs and attorneys' fees
that will decrease the size of the estate for all beneficiaries. If
there is good reason for treating your children unequally (such as
where one child needs more than the others because of physical or
mental limitations), consider making gifts to that child during
lifetime rather than making unequal distributions under your will,
or establish a trust that will provide for the child.
- Consider Using Modern Inclusive Definitions of
Issue/Descendants in Your Documents: Wills traditionally
use the words "issue" and "descendents" to
identify who inherits. But depending on legal precedent in your
state, the definitions of "issue" and
"descendent" may not cover modern concepts of children,
including those conceived by modern methods of in-vitro
fertilization, or a surrogate mother, adopted children, the
non-biological children of gay couples, and the biological children
of unmarried couples. Because the methods of procreation that may
be utilized by your offspring in the future won't be known, you
should consider using an expanded definition of "issue"
and "descendant" in your estate planning documents to
encompass modern methods of conception. You may also want to
consider drawing the line for children who are adopted after a
certain age, such as 21. Adoptions of paramours have been used as a
way to ensure that they inherit.
- Avoid Conflicts of Interest When Selecting
Executors/Trustees: The attorney who drafts your will or
your trust instrument may have a conflict of interest if he or she
serves as your executor or trustee, especially if he or she is also
serving as a fiduciary for other family members who are also
beneficiaries. Similarly, a business partner serving as a trustee
may have conflict of interest. Consider the appointment of
co-executors and co-trustees, who can act as a check and balance.
Also consider the appointment of a corporate trustee along with an
individual whose judgment you have reason to believe will be
respected by the beneficiaries.
- Don't Hamstring Your Trustees But Ensure
Accountability: When creating a trust, the instrument
should not try to dictate the timing and purpose of every
distribution but provide general guidelines of what is acceptable.
Choose the right trustees and give them broad discretion and
authority. Consider giving your trustees the authority to terminate
the trust under circumstances that you set forth in the instrument.
Consider whether to include specific provisions as to how the
trustees will be paid, i.e. by statutory formula as applicable in
some states, by hourly rates, or otherwise.
- Consider Trust Protectors for Irrevocable
Trusts: A trust protector is a fiduciary, separate from
the trustee, whose role is to ensure that the trust's purposes
are being satisfied. Toward that end, he/she can be given the power
to remove and replace a trustee, to amend trust agreement if the
terms no longer carry out the grantor's intent or to achieve
tax objectives, and to change the situs of the trust. Consider
designating a trust protector for longer term trusts, such as
trusts that may continue for more than one generation. If you
choose to use a trust protector, the role of the trust protector
and his/her powers should be carefully spelled out in the trust
- Trust Beneficiaries Should Not Be Left in the
Dark: Notwithstanding a grantor's wishes, all
beneficiaries are entitled to a copy of the trust agreement as a
matter of law. Consider spelling out in the trust instrument the
frequency of the trustee's reporting to current income
beneficiaries and what information they are entitled to receive
from the trustee. Also, keep in mind that in most jurisdictions,
remainder beneficiaries are entitled to be kept reasonably informed
about the administration of the trust and of the material facts
necessary to protect their interests.
- Edit Your Estate Plan Along the Way: Your
circumstances and those of your family members will change over
time. Changes in federal and state tax laws may necessitate changes
to your estate plan. Schedule annual meetings with your attorney
and financial advisor to review your plan and ensure that it is
both current and complete. The cost of keeping your estate plan
current will be miniscule compared with the potential estate tax
- Consider Possible Changes in Family
Circumstances: "Shirtsleeves to shirtsleeves in 3
generations" is a common occurrence. When making bequests,
consider which family members will be able to maintain a real
estate asset, including taxes, in future generations, and build in
mechanisms, such a trust, to enable them to do so. Also consider a
dispute resolution mechanism that will govern decision making about
selling the asset if it is no longer wanted by your heirs or they
can no longer maintain it.
- Dispute Resolution Mechanisms: Nip disputes in
the bud by having candid up-front discussions with your family.
Litigation is likely to be expensive, and may expose family matters
in a public forum. Consider alternative dispute resolution methods,
including mediation, to resolve disagreements among family members,
keeping in mind that minor, incapacitated, unborn and unascertained
beneficiaries must be appropriately represented by their own
counsel. Even if a will or trust instrument does not contain
mediation provisions (and most do not), family members may
voluntarily agree to mediation as a way to avoid litigation in
This article was originally published in Wealth Management. To read the full article, click here.
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