January 1, 2007
Written by Staff at The Centre for Mediation & Dispute Resolution
Estate Planning. Part One: A look at one Family’s Issues & Options
In June of 2006, on this website, we discussed Harry and Wendy’s estate planning concerns. Recall that Harry and Wendy had accumulated substantial assets and embarked on the process of estate planning. Although they agreed on how to handle the tax implications, they are stuck on the emotionally-charged issues relating to their estate plan.
This month’s article will examine some of the estate planning options Harry and Wendy will consider, as well as the implications associated with each option. Next month we will discuss their decisions, and how mediation helped with the decision making process.
Let’s look at some of their specific concerns, particularly those that pertain to their fourth child, a 35 year old married man who seems not yet to have “found himself”. But first, let’s remember the situation:
Harry and Wendy have four married children. One child works as a teacher without substantial compensation; a second child is a financial manager who has achieved financial success; the third child is a stay-at-home mother of three. Although the differences in the degrees of financial success among the three children may be an area worth pondering, the fourth child’s life course raises a different set of questions for Harry and Wendy.
Over the years, Harry and Wendy have provided their fourth child with considerable financial and emotional support. Still, their youngest son has drifted from one bad situation to another, both personally and professionally. Harry and Wendy understand and appreciate their children’s individual differences, yet they have serious questions about their youngest son’s future. They worry that their son’s access to assets may lead to a depletion of the resources. Moreover, Harry and Wendy recognize that they have already provided much greater financial support to this child than to the others. What should Harry and Wendy do? Consider a few of their options.
Harry and Wendy could leave their assets equally to their four children. The philosophy being that whatever it is that the fourth child does with his share of the assets is his business. He needs to take responsibility for his past and for his future. Hopefully he will view his inheritance as a gift to help him secure his future. Yet ultimately, the decision is his.
The consequences of this decision could have serious repercussions for the other children. For example, if he foolishly depletes his inheritance, it is conceivable that he will become both a financial and emotional burden on the other children. His siblings will need to decide if they are willing and able to take on this responsibility; a decision which would reflect the very core of each one’s family values. What if the three siblings do not agree on how this should be handled? What if there is a discrepancy in the degree to which the other children could and would contribute financially to his well-being? How do these decisions get made? How would this decision affect the relationships of the siblings? How would this decision affect the siblings’ own families – their spouses and their children? Is this too great a burden to put on the siblings?
This option takes a hard line approach. Harry and Wendy might decide that child number four has been given the same, if not more, advantages as the other children. He has had a wonderful education, was provided with a comfortable and supportive home life, and still he seems to be unable to appreciate the help or tap his potential. They could decide that it is a waste of their assets to give anything more to this child. This ‘tough love’ approach does not take into account the degree to which the other children may feel a moral sense of responsibility or obligation towards their youngest brother. Would they come to their brother’s aid, financially and emotionally, if he were struggling? Would they decline assistance if it was requested? Once again, if the siblings were not in agreement, resentment could breed and affect their relationships with each other. Regardless of what Harry and Wendy intended in their estate planning, they cannot predict the impact of their decisions on all family members.
The third option gives the three siblings control over the fourth child’s inheritance. Money would be held in trust for this child. The trust would be structured in such a way that two of the three siblings would have to agree on any disbursements to the fourth child. Although this option protects the fourth child’s financial future, it creates a dependency on the other children. The fourth child essentially loses control of his inheritance and is forever locked into the “baby” role in the family.
The trust could, of course, be structured in a number of different ways: disbursements could be made as requested, or in periodic payments (either monthly, quarterly, or annually) to the fourth son. This provides some degree of protection and gives him more independence to make his own financial decisions. If, however, Harry and Wendy agree to set up a trust for their fourth child, thereby establishing an estate plan that is different for this child, what is the message they are conveying to that child? Would this message in some way become a self-fulfilling prophecy? Harry and Wendy need to understand the messages they are conveying with every decision they make.
Harry and Wendy could pass over their fourth son and, instead, allocate his share of their money in trusts for his offspring. Quite likely, this could create a riff between the fourth child and his siblings.
Harry and Wendy do nothing, paralyzed by the difficult issues that need to be resolved. They could therefore allow the intestate probate laws to divide their estate without their input.
Look for next month’s article:
Part Two: One Couple’s Decision and the Process that Facilitated their Decision
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