As Benjamin Franklin famously stated, “In this world, nothing can be said to be certain except death and taxes.” I have found this to be absolutely true. I have also found that proper estate planning can help to lessen the sting of both.
Crucial Conversations
More often than not, parents don’t talk to their children about their estate and what will happen to it after they die—they want to avoid that awkward conversation, so they choose not to deal with it. But as a financial planner, I’ve seen the chaos that inevitably falls upon children when their parents fail to create an estate plan or fail to share their plan with the rest of the family.
At Foresight Wealth Management, we believe that proper estate planning and transparent communication are critical. That’s why we hold what we call “family legacy meetings” with our clients. At these meetings, we invite the parents to come to our office with their children to explain how the estate works, e.g., if Dad passes away, then Mom does this. If Mom dies, then this happens. And if both parents pass away, this child is in charge, and this is why we chose them. It’s when plans aren’t fully disclosed that major problems occur.
Confusion and Conflict
I recently had a firecracker of a client who was in her 90s. She wanted to disinherit one of her two daughters, and for years, I had tried to talk her out of it.
“Please, don’t do this,” I cautioned, but it was her money to do with as she saw fit. She drafted the documents, and two weeks later, she passed away. It was only after my client’s death that her daughter learned that she had been disinherited. She was furious. She filed a lawsuit against her sister and accused her of coercing their mother into disinheriting her. It created drama and heartache, and it tore the family apart. I never advocate to disinherit children, but if you are going to do it, I strongly believe that it should be communicated to them ahead of time so that it doesn’t pit the children against one another.
No One-Size-Fits-All Solution
At Foresight Wealth Management, we understand that there is no one-size-fits-all solution to estate planning. Every family situation is unique, and we will ask the hard questions—and the right questions—the help you determine the best plan for you and your loved ones.
Traditional Families
Have you been married to the same person for your entire life? When all children belong to the same parents, those parents tend to know their children better than anyone else does. When these couples decide how to distribute their inheritance, we have them consider the following questions:
• How responsible are each of my children with money?
• Are any of my children struggling with an addiction?
• Are any of my children going through a divorce?
• Do any of my children have special needs?
Depending on the answers, it might make more sense to set up payments rather than have them receive a lump sum. You might also want to set up a third-party trustee or require them to reach a certain age before receiving their inheritance. If you have a child who can’t live independently, consider setting up a special needs trust and creating monthly payments to cover the cost of their care. I then recommend splitting the balance of your estate equally among all your children, even if some are financially better off than others. Believe me when I say that it will prevent hurt feelings and arguments down the road.
Blended Families and Divorce
Estate planning can become more complicated when it involves a second marriage that includes children from previous relationships. Often, how the estate is handled depends on how long the couple has been together. People commonly leave 100 percent of their estate to their new spouse with the assumption that he or she will take care of their children. But if there’s not proper planning involved, even the best of intentions can fall by the wayside, and your wishes might not be carried out. That’s why it’s so important to have those hard conversations with each other—sooner than later—and to put everything in writing.
I’ve also seen several cases where people have remarried but have forgotten to update the beneficiary on their life insurance policies—accidentally leaving the death benefit to the ex-spouse. Unfortunately, life insurance policies are contract driven, so in these situations, the new spouse has no legal recourse. Finances often become more complicated when there are multiple marriages involved, so don’t forget to cover all your bases.
What if you’re divorced and have minor children? If you don’t do any estate planning, your children will automatically inherit your money, but because they’re minors, their other parent would become the guardian of their estate by default and gain control of that money. So, in a way, you would be giving your children’s inheritance to your ex-spouse. To avoid this situation, be sure to appoint a trusted family member or friend to act as a third-party trustee.
Don’t Forget About Possessions
In my experience, it’s not the money that breaks up the families but the stuff—those family heirlooms that hold deep sentimental value to one or more family members. I have one client who inherited millions of dollars, but her family members didn’t speak to each other for 20 years because they were arguing over who should have Mom’s doilies.
I recommend that parents have their children identify which possessions they would like to have. That way, you aren’t putting the burden of deciding who gets what on another family member. But be sure to put in writing how those possessions will be distributed.
One of my clients had five children, and they all came to the house and did their wish lists. Unfortunately, all five of them wanted the piano. My client passed away before finalizing his instructions, so each child assumed that they were getting the piano. The decision fell to the trustee, who happened to be the oldest daughter. It put her in an incredibly awkward position and created a tremendous amount of strife that could have been completely avoided.
Preserving and Protecting
An important part of estate planning is ensuring that any investments transfer to your heirs in the most tax-efficient manner. At Foresight Wealth Management, we will analyze your investments and determine the most tax-efficient strategy for your estate. Sometimes, that might mean paying a little tax now because it will be significantly better for the family later.
Another way to avoid taxes is by gifting amounts less than $15,000. In fact, there are a lot of things that you can do while you’re alive to protect your estate from unnecessary taxes. Our goal is to preserve it and to pay as little as possible to the government.
Peace of Mind—for You and Them
I urge everyone to create an estate plan as soon as possible. Life can change in the blink of an eye, and if you don’t have a plan in place, all you’re doing is kicking the can down the road and leaving your family members to deal with unnecessary drama and confusion at an already difficult time. Over the years, I’ve learned what works best for different family situations, and I’ve witnessed firsthand the kind of peace that comes from a smooth estate transition rather than one fraught with tension and conflict due to unresolved issues and miscommunication.
I’d love to help you and your family find that peace, so please call me at 801-462-2200 or visit foresightwealth.com to learn more.
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Information presented should not be viewed as personalized investment advice. Always consult your financial professional regarding your specific situation. All investment strategies have the potential for profit or loss. Expressions of opinion reflect the judgment of the presenter and are subject to change depending on each client’s situation. Advisory services are offered through Foresight Wealth Management, LLC, a Registered Investment Advisor with the SEC. Foresight Wealth Management, LLC, only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission and does not imply that the advisor has achieved a particular level of skill or ability.
