01 Mar Talking inheritance with the kids
When it comes to estate planning, both you and your children can often benefit from discussing how, when and why wealth is going to be transferred.
Once you’ve developed a well-drafted, comprehensive, and up-to-date estate plan, you may soon wonder when or if you should share the contents of your will or larger estate plan with your beneficiaries, especially your children. There is no one right answer to that question. Legally, you’re never obligated to do so. Further, many estate practitioners would argue against letting them know.
A will has no force or effect until your death. So long as you have legal capacity, you are, with certain limited exceptions, free to change your will whenever you want. This is a strong argument in favour of keeping the contents of a will private. Moreover, many parents are rightly concerned with the potentially demotivating effect inherent in the promise of a large inheritance. What happens to the incentive to work hard when you know you’re in line for a substantial windfall down the road?
Still, there are a few situations where disclosure is always in order:
~Where the inheritance comes with obligations attached;
~Where the plan has the potential to cause discomfort or tension among your beneficiaries; and
~Where some prep work on the part of your beneficiaries may be warranted.
The gift that keeps on giving…
Your family cottage or family business are two assets that should not be bequeathed in a vacuum. These assets entail both rights and obligations and an equal distribution will seldom be the fairest distribution. As such, the succession of these particular assets falls squarely into the first category and could also stray into the second and third.
The succession of the family cottage plays a starring role in many estate litigations. Failure to realistically explore the options with all interested parties beforehand is often to blame. At a minimum, you should address the following questions:
~Are any or all children interested in owning the cottage?
~Are any or all children in a position to shoulder the costs and other obligations inherent in ownership?
~Is co-ownership truly realistic?
~Don’t forget to factor sons- and daughters-in-law into this equation. The same goes for succession of the family business, where the stakes are likely much higher.
~The only way to create a truly viable succession plan is to involve the family in the plan and ask the tough questions. You may be surprised to learn that a child has no interest in taking over the cottage; loves the cottage but accepts they are unable to handle the financial obligations; or loves the cottage, but cannot envisage co-ownership.
~Realistically explore your children’s interest in, and aptitude for, taking over the family business.
Planning for the big day
Another situation where you may want to speak with your adult children about the estate plan is when a significant amount of money is involved.
~You’ve spent a lifetime amassing, and learning to manage, your estate. An outright blind transfer to the next generation may not be the wisest option. A trust can be structured to provide a fixed income stream with staggered capital distributions, allowing beneficiaries to mature into their wealth.
~Depending on the estate, additional preparation could be in order. This can, and often should, be done without divulging the actual amount involved.
~No matter their level of education or degree of sophistication, your children may have minimal experience dealing with professional advisors. It’s best to begin the introductions now.
~Informal family meetings may be the most appropriate forum for addressing these issues.
~Depending on the issues and family dynamics mediated, meetings may be required.
~Including your children as guests at special annual or semi-annual advisor meetings can successfully address any knowledge or maturity gaps. The agenda should include an educational component tailored to be of benefit to the inheritors.
~An effective estate plan should reflect your goals and wishes, but should also be understood and accepted — even if it isn’t embraced — by those expecting to inherit
Opening lines of communication
Ultimately, you should consider your estate plan from the perspective of your children. Where you find extra help or explanation useful, start planning for the best way to get the conversation started.
To read this article from Advisor to Client, CLICK HERE. If you have questions be sure to contact Harry Perler or David Olejnik.