Many parents develop their initial estate plan when their children are very young. Once their children have grown up, parents typically will revise this initial estate plan. Once revised, most estate plans are carefully designed to help efficiently transfer assets to the surviving spouse and eventually the children. This process does a poor job of preventing a serious problem that no parent would wish for.
One problem my firm witnesses after parents pass away has nothing to do with finances. The common problem is often fractured relationships between siblings that begins during the inheritance process. This frequently occurs because siblings feel money is being misappropriated, they don’t have a clear understanding of what their parents wanted, or they feel like they are being kept in the dark during this process.
Unfortunately, the common denominator in many of these situations can be traced back to their parent’s estate plan. The good news is careful planning can go a long way towards preserving your adult children’s relationships after you pass away.
What Causes Sibling Animosity?
Before we discuss strategies designed to save your adult children’s relationships, it is important to understand some examples that cause the fractured relationships between siblings.
Parents may appoint one of their children as executors within their estate plan. This child is responsible for many things during the inheritance process including locating, reading, and understanding their parent’s will. He or she is also responsible for working with advisors, financial institutions, and real estate agents to help make sure that assets get liquidated and/or transferred to the beneficiaries amicably according to their parent’s wishes. If the executor is not consistently and effectively communicating with the other siblings, concerns can begin to arise as the other siblings begin to wonder if misappropriation of monies is occurring.
Multiple kids inherit property, like a cabin, and the kids can’t agree on what needs to be fixed, who gets to use the cabin during certain weekends, or there may be one child who doesn’t want to pay for normal maintenance but finds plenty of time to use the cabin.
The parents haven’t made arrangements for final expenses to be paid (e.g. set up a trust, pre-paid for funeral costs) and/or the parents haven’t communicated with their children about their responsibility to pay final expenses. If there is no probate, trust, or other plan communicated, then it is up to the children or other beneficiaries to agree upon how expenses will be paid.
One child wants to buy a property that the parents had owned and believes he/she should get a favorable price, while other siblings believe he/she should pay full price.
This shortlist certainly is not all-encompassing. Hopefully, it helps you understand the plethora of things that could occur. To work towards preventing these problems, I advocate using a three-step process towards estate planning. The first step in this process is making sure that you hire an attorney with extensive experience in estate planning to create your estate plan.
Step 1 – Hire the Right Estate Attorney
In my opinion, one of the biggest mistakes people make when hiring an attorney for their estate plan is relying on referrals from friends or family who are not knowledgeable about the estate planning process. To avoid this problem, consider getting your referrals from professionals who have a long history of seeing the aftermath of the estate plans created by various attorneys. The types of professionals who are privy to this information may include financial advisors, wealth managers, and CPAs who have a long history of working with retirees. Leaning on the expertise of these “in the know” advisors can help you discover the competent attorneys to create your estate plan.
Step 2 – Create a Financial Overview
A second key component towards rescuing your children’s future relationship includes creating a comprehensive financial overview. A well-made estate plan can go to great lengths to reduce the problems associated with estate planning, but it does nothing to help your beneficiaries determine what you own, where you own it, and the people to contact who have this information. Making this even more difficult is the reality that people keep a lot of their paperwork and account information online, in email, or in other digital forms behind passwords and authorizations, leaving no paper trail for beneficiaries to find.
This financial overview should help to simplify the inheritance process for your executor, and it can help serve as the foundation for you and your executor to communicate openly with future beneficiaries to minimize skepticism that can occur when tasks are being completed behind closed doors. Your inventory should include, at a minimum, the following items:
A list of all assets, liabilities, and insurance policies you have, including how each of these is titled and who the beneficiaries are.
A list of all estate documents and where to find them.
Contact information for all the financial, insurance and legal professionals you have relationships with.
The usernames and passwords for any websites your beneficiaries may need to access.
You also can include a legacy letter with your financial overview. The legacy letter should be designed to communicate non-financial items that are important for you to communicate with your children.
Step 3 – Schedule a Family Meeting
Once your estate plan and financial overview have been completed it is time for step three – the family meeting. The family meeting can be done with the parents and all of the children who will be inheriting assets. Some of the different topics to discuss at this meeting include:
What – Mentioning that you have assets that will be split up according to your estate plan. Share as little or as much of the specifics that you are comfortable with.
Where – Mention to at least one of your children where your financial overview, important estate planning documents, and other important items are located along with which advisers to contact following your death.
How – Explain that somebody will be acting as executor following your death (if the estate goes through probate) who will have many responsibilities. If you are comfortable, you can mention who you selected and why. Also mention that part of this person’s responsibilities should include open communication with the other beneficiaries so that sufficient transparency exists. This is important to communicate because a lack of transparency is frequently the source of sibling animosity that starts during the inheritance process.
Legacy/Why – Most people have a lifetime of knowledge that never gets imparted to the next generation because traditional estate planning typically only covers the financial side of the planning process, and unfortunately inheritances are often blown rather than used in a meaningful way to open new life opportunities.
Clearly articulating the reasons for how you made your estate planning decisions and sharing your hopes for the future can provide the clarity needed to successfully transfer assets and wisdom to the next generation. You also may want to mention you did the best you could to keep things fair, and how you sincerely hope that the inheritance process helps pull the kids together rather than something that tears them apart.
In summary, this three-step process is designed to keep your children’s relationships intact even when you are no longer physically here. Hiring a competent attorney, creating a clear financial overview, and communicating what is important to you are key steps in helping to keep your tight-know family close for generations to come.
This is an updated version of Ty Bernicke’s article originally published in Forbes on July 2, 2020.
Bernicke does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein. All such information is provided solely for convenience purposes, and all uses thereof should be guided accordingly. We are neither attorneys nor your accountants, and you should interpret no portion of this material as legal, accounting, or tax advice. We recommend that you seek the services of a qualified attorney or accountant.
