Spectrum Management Blog

By Tia M. Lee | July 1, 2014

The case of not communicating about your estate plan

Virtually all parents believe that they should discuss financial matters with their children, but according to a past survey conducted by the National Endowment for Financial Education, 69 percent of the respondents felt they had barriers to open communication. I cannot readily cite statistics about other topics families struggle to discuss -- judging by nightly TV programming, however, it appears to me that money is the only topic that is off limits. Apparently, open conversations about all things make for a closer family and well-adjusted children. 

The more wealth a family accumulates, the more there is to discuss, and it seems that this fact does not change the above cited trend for wealthy families. Most have professional advisors, attorneys, and CPAs with whom they discuss their financial matters; they usually have one key coordinator with full knowledge of their financial picture but the children remain on the sidelines. According to a survey conducted by U.S. Trust, only four out of 10 families surveyed trusted their children (over the age of 25) with the knowledge of their entire financial picture.

I am a strong advocate for bringing family members into the discussion earlier rather than later. One of my father's favorite sayings is, "We are all headed in the same direction," which is a nice way of saying we will all pass someday. When that day comes, our family members will see the full picture, but we will no longer be able to pass along additional information or answer questions for them.

The first 15 years of my career were spent working as a trust administrator for a regional bank with the responsibility of settling estates and managing the trusts created by these estates. I have numerous examples of parents who did not discuss their wealth or estate plan with their children; in almost every case the children were hurt and/or disappointed by some part of the estate plan or settlement process.

Behavioral therapists will tell you that most conflict arises from unmet expectations. As a former trust administrator, I would like to add that some of the worst conflicts can be over unmet financial expectations. 

The case of extreme silence

For our purposes, I will refer to my client as John. John had a net worth of roughly $11,000,000 and was currently divorced with two sons (12 and 19 years old). Shortly before his 49th birthday John learned he had cancer and only one to two years to live. He wisely got his affairs in order by working with his attorney to draft a trust document and transferred all of his assets into a revocable trust with John acting as the initial trustee during his lifetime -- sounds good so far. I met regularly with John before and after his diagnosis, but he was very private about his illness. He told me about the trust but did not share the details.

About a year and a half after he was diagnosed, we were meeting jointly with his CPA and he was showing signs that his illness was taking a toll on him. So I decided to step out on a limb and ask him what would happen if his latest treatments were not successful. He responded and I quote, "You're handling it and you'll find out when I'm gone." I did not feel like I had the right to push further, but that answer was very disappointing. That was the last time I saw or talked to John.

Two months later I received a phone call from his attorney telling me that John had passed away, and I was appointed trustee in charge of handling his affairs. He went on to say that I needed to come and secure John's house immediately because his children and their mothers had already been there and were removing items from John's home. You see, it is the trustee's duty to protect the interest of all the heirs of an estate. At that point in time I had no knowledge of the terms of John's trust because he had not shared them with me, but I still had a duty to assure each heir received the assets John intended. Thus on the day of his funeral, his attorney and I went to his home to change the locks so no more assets could be removed.

Try explaining to a grieving child that preventing them from entering their parent's home, even to remove items that belonged to them, was protecting their interests. This act alone was enough to begin a very rocky relationship with the family. No one had explained to them what to expect once their father passed away. I was no more than an unwelcome stranger, a road block not to be trusted. The next six months involved several struggles with the two ex-wives (engaging of an attorney for their respective child), a trip to court, and numerous meetings.

It is my belief that a lack of communication prior to his death was the primary reason financial resources were lost to unnecessary legal expense and additional time was needed to build a relationship with John's two children. Eventually, they came to see that I was on their side and my goal was to assure they had a strong financial future. On several occasions along the way it could have easily ended very differently. 

Stay tuned for part two where I will provide a list of steps to make the settlement of your final affairs go as smoothly as possible.  

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Topics: Tia M. Lee, Estate Plans, Income Tax and Estate Planning