I wrote last week on estate planning, and well … the response was such that I’m returning to the topic today. This time, for some “bigger picture” words on the subject.

But before I get there, IMPORTANT TAX NOTE:
Personal returns that were extended during “tax season” are due WEDNESDAY, October 15th.

That means that if you’re someone we’ve been working with on an extension, and we are waiting on something from you … well, this week would be a marvelous time to send it our way! And, of course, we’re working like bees in a garden to get all of our extended clients finished with the excellence to which you’re accustomed.

Which is actually a great segue to what I want to write about today.

In our line of work (as with many, I suppose), it’s so easy to get hung up on processes and outcomes — and forget about the big picture.

And while we speak of preserving assets (both financial AND “intangible”) from being overly taxed, and developing good procedures and structures for emergency situations — some families (and their estate planners) can forget what’s most important in any sound estate plan.

Valerie McLaughlin’s
“Real World” Personal Strategy Note
Estate Planning’s Best Outcome

“The secret of happiness is to count your blessings while others are adding up their troubles.” – William Penn

The most important product of estate planning isn’t only avoiding probate or reducing estate tax exposure, it’s achieving family harmony. As a result, we must watch out for personal dynamics that might threaten disharmony when a person dies or becomes incapacitated.

First, think carefully when you choose your executor or trustee. Being selected to manage an estate for someone who can no longer do so because of death or incapacity is an implicit compliment. It shows you trust the person you’ve named to do the right thing in the right way.

But it is also a very big job. Unfortunately, it can–and often does–feel like a thankless one. And what’s worse is that lack of thoughtful planning too often results in irreconcilable family feuds.

We all know that someone must settle our estate when we die. But because people live longer these days, more of us will experience a period of incompetence before our death. We must plan for the possibility that someone will become responsible for our physical and financial well-being long before a final settlement of the estate can be made.

We often choose a close family member, who probably has no knowledge of what’s required of a “fiduciary” (the term used to describe a person to whom property or power is entrusted for the benefit of another). Taking on a new and unfamiliar task is stressful and difficult, especially if your life is already full.

Remember that serving as a fiduciary, whether as an agent under a power of attorney, an executor under a will, or a trustee under a trust agreement, is a post of honor, but it is not an honorary post.

Don’t name an oldest child just because he or she was born first. Ask yourself if your oldest has the traits of a good executor or trustee. Is he organized? Is she trustworthy? Will he see a job through to completion? Is she diplomatic and fair-minded? Might he abuse the position to settle old scores and wounds that are sometimes 30 years in the making? Is she sensible? Will he know when he is over his head and needs professional help?

In short, given all your available choices, is this child the best person for the job?

People sometimes want to name more than one executor, so that no child will feel left out. If you’re so inclined, ask yourself, “Am I putting two scorpions in the same bottle?” The administration of an estate is not intended to be a therapeutic exercise that will ameliorate 20 years of bad feelings between brothers.

Now don’t get me wrong. Co-executors can be a good way to go. But ask yourself first if they are people who can work together. Will they help or hinder each other?

Second, think through how you are leaving your estate behind. Family disharmony provisions are all too common.

For example, if you are in a second marriage, it’s sometimes hard to be fair both to your spouse and to the children of your first marriage. In one situation, a 50-year-old man had concerns about his father’s will. His dad left virtually everything in trust for his second wife. Such a trust commonly provides limited amounts of income and principal to the spouse during the surviving spouse’s lifetime. When she dies, the assets pass to his children from his first marriage.

But because the stepmother is 55 years old, Dad effectively disinherited his kids. Don’t set up a plan where your children are waiting for their stepmother to die to get their inheritance. Think of creative ways to be evenhanded to your present spouse and your children when you die. And there could be problems naming either the stepmother or the children as trustee.

Another planned disaster is leaving real estate equally to all your children. In many states, real estate drops like a rock through probate. It’s not like money you can divide up equally. If your kids can’t agree unanimously on what to do with the real estate, it can be a serious problem, as often the only remedy the law provides is a partition suit. To keep the peace, provide an enforceable mechanism for either one child to buy out his or her siblings or for an executor to sell the real estate and divide the net proceeds up among the children.

Here is another dilemma that requires special consideration. You might recognize the need for one of your children to have his or her inheritance left in trust because of a poor credit record, mental instability, financial instability or a bad marriage.

Suppose that child resents the arrangement, which is quite possible. Who are you going to name as trustee of that child’s trust? Are you going to name a sibling as the trustee of another sibling’s inheritance? How will that decision affect the sibling relationship?

And if you name a professional trustee, such as an attorney or bank, are you putting your child at the mercy of that professional trustee? What if they provide poor service after you die? Or raise their fees? All those problems go away if you give someone you trust–such as the child you were thinking about naming as trustee–the unlimited power to fire the professional trustee and appoint a new one. It’s no surprise how much better professional trustees perform when they know they can be replaced at any time.

Estate planning begins with selecting the trustee who will handle it best. Probate and estate tax avoidance can be easy (with the right expert on your side). But selecting the best trustee is critical.

So be sure you structure everything legally in a way that will create unity, not animosity. Make that decision well, and you are halfway to drafting your estate plan with family harmony in mind.

And, of course, we’re here to help.

Warmly,

Valerie McLaughlin
(410) 224-2600