By Alan L. Nobler
I was meeting with friends of many years who had also been estate planning clients. I had prepared an estate plan for them 30 years ago and they are just now getting around to revisiting that plan. They were at their wits end because they wanted to have their adult children share their estate equally, but couldn’t figure out how to make that happen due to the nature of their estate.
Their current situation is that they are both in their late 70’s. They have a home that is lien free, with a value of $2 million; other assets of $1.25 million. Their son is 45 and is on disability. He is married and has 2 children. He and his family live in the mid-west. Their daughter is 42, is married with 2 children and lives in the bay area.
They have made their children co-executors, co-trustees, and equal beneficiaries of the estate. The problem is that their daughter wants the house, and the son wants the cash. The clients both laughingly agreed the daughter will somehow get her way, but want to keep peace in the family.
It is always easy to write that something should be shared equally. But sometimes that is impossible without looking at what is actually there to be shared. Sometimes it is a valuable piece of artwork. It could be a business. In this case the dominant asset was a house.
Estate planners may offer up some possible solutions, for instance:
- buy an insurance policy to add cash to the estate. The children could pay a portion or all of the premiums.
- Take out a mortgage to add cash and have the children contribute.
- Write a provision into the trust requiring the beneficiary of the house to buy out the equalization amount on terms specified by the trustors.
The planner will then, most likely, send the family away to come back when they have decided what they want the planner to write.
Collaboratively trained professionals are more likely to suggest a plan to have all the parties have a conversation, facilitated by someone with family systems background, and help the family come to their own conclusions. The Collaboratively trained planner may sit in on the session to alert the family to any unseen tax or financial pitfalls in their plan, but does limit their choices.
Now, what would the planner do if the parties said they don’t care if it is unequal, that they want their daughter to have the house and their son to have all the other assets? I think most planners would caution against that inequality, but that the Collaboratively trained planner would follow the same program of a managed family conversation.
Experience tells me that plans discussed and understood by all interested parties stay settled, without later litigation. While that experience is merely anecdotal, it is nevertheless significant. The biggest hurdle will be having the trustors comfortable in proceeding with the conversation. You may remember the old AAMCO tag line, “Pay me now or pay me later!” and see how that makes sense: add a thousand or two to the plan now or a hundred times that later. Some clients may be so averse to conflict that they’d rather the money diminish the estate later. Others will see the wisdom, like buying homeowners’ insurance, of protecting their estate for their heirs and leaving a legacy of positive conflict resolution.