Most estate planners and their clients don’t focus enough on avoiding conflicts. I don’t mean the obvious conflict of leaving money to the estate planner or having a major beneficiary prepare the will. What’s more important are the ways an estate plan can create conflicts among the heirs or continue existing conflicts.
Here’s a good piece by a couple of CPAs that explains key ways to avoid estate planning conflicts. The authors list a number of ways to avoid conflicts and litigation among the heirs, many of which have appeared in Retirement Watch in the past, including the rarely-considered suggestion to avoid trying to be evenhanded or treat everyone equally.
- Overcome the concept of fairness. One of the most common issues is when parents try to be “fair” in order to ensure their children get along. In this situation, the parents are also typically trying to protect and keep the legacy asset, whether it is a business or a home, in the family and on a growth trajectory. If one sibling is invested and interested in the family business, while the other sibling is not interested in the family business and wants to pursue a lifestyle that is quite different from the other sibling, splitting the business “fairly” between the two siblings, i.e. giving each sibling an equal portion of the business, is likely to cause tension and unnecessary disagreements and legal battles down the road.
- Transfer assets based on a natural flow. Instead of transferring assets equally, focus on what makes sense for the individual you are transferring the asset to. For example, if only one sibling is interested in the family business, he or she should be considered to own the family business in the future. If the other sibling is not interested in the business, other mechanisms can be set into place for transferring different assets to that child.
The question of whether or not to buy long-term care insurance perplexes many people. They don’t know how to approach the issue and don’t want to be led around by an insurance agent seeking a commission. If you’re in that situation, or simply want a decent road map to analyzing the decision, consider this post. It covers many of the issues we discuss in detail in Retirement Watch. It’s not a complete discussion, of course. But for those who simply don’t know where to start or need a template to organize their thoughts, it should be a big help.
Will you need long-term care? Almost seven of every ten of us will need some sort of personal assistance after age 65, and we’ll need that help for an average of about three years. For many people, however, the assistance needed will be relatively modest, can be provided by family members and might not be covered by LTC insurance anyway. That’s because to qualify for LTC benefits you must need help with at least two of five “activities of daily living,” such as getting in and out of bed, bathing, dressing, eating or going to the bathroom. What’s more, you’ll need it for an extended period, since policies typically don’t cover the first 90 days of care. On the other hand, 20% of seniors will need care for five years or more, and 5% will spend more than $100,000 of their own money on this assistance.
Women are more likely than men to discuss finances with relatives, while men are more likely to help an adult child buy something. The findings are part of a study by Ameriprise Financial about how people in three different generations interact about money. It updates a similar study from five years ago. One key finding is that everyone is more willing to discuss finances now.
Boomer women are also more likely than men, the survey says, to talk with parents about finances and aging issues. For example, 62% of surveyed boomer women say they have talked with their parents about how the latter might pay for long-term-care expenses, compared with less than half (49%) of boomer men.
The good news: Both women and men today are more likely to discuss financial matters with their families than they were five years ago, the report concludes. That said, there remains a perception among baby boomers, according to Ameriprise, “that their parents are unwilling to discuss these issues, which may not be the case.”
There are a lot of ways to protect your assets from potential creditors. The key to success for the most part is to take action before the creditors claims are real. If you wait, as too many people do, most of the actions you can take will be viewed as a fraud on the creditors and reversed by courts. Here’s a tale of a wealthy many who made some mistakes, and now is likely to go to jail in addition to losing judgments in various court actions.
The solution his lawyers came up with is for him to adopt his girlfriend as his daughter. The man and his lawyers say that he didn’t wait too long to take asset protection and estate planning actions, and the purpose of these moves isn’t to avoid paying damages in the coming lawsuits. Instead, the trust was created and funded many years ago. The point of the move is to ensure his girlfriend and her two young children from another marriage are taken care of, along with his children who also are beneficiaries of the trust. They also say the move gives input into the decisions made by the trustee. The man isn’t happy with the actions the trustee is taking with trust assets, and his children are too young to object. Their mother apparently is pushing the trustee to make the changes. Adopting the adult girlfriend as his daughter makes her a beneficiary and provides a strong voice to complain to the trustees about their proposed actions.
It’s unique, and apparently created quite a firestorm in the local media.
Most of the news about Whitney Houston covers her career, her turbulent life, and speculation about the way she died. What about her estate plan. At one point in her life she was fabulously wealthy. More recently there were rumors that she was short of cash. She’s had a lot of litigation involving her family. Her substance abuse problems prevented her from maximizing earnings over the last decade or so. The web site, The Trust Advisor, pieced together what it could find about her financial situation with opinions from estate planners to make educated guesses about her estate plan. We won’t know for a while yet what strategies she used or failed to use and the financial condition of her estate. Click on the article if you want some educated speculation.
Part of the problem is that Houston’s last decade was extremely complicated, so the lawyers had less time than we might think to keep her affairs orderly.
When she signed that $100 million contract, she was already carrying her long-time husband, Bobby Brown, and a young daughter.
Her father, who had managed her career up to that point, was slowly dying of heart disease and seems to have been perpetually hurting for cash.
In 2002, he sued her for a round $100 million, claiming he was owed that much for helping her beat marijuana possession charges and negotiate her big record deal.
That suit dragged on well after his death before being dismissed in 2004, robbing Houston’s lawyers of vital time to move that money into an asset protection trust.
The Wall Street Journal over the weekend had a good piece on the tasks and chores adult children had to deal with after a parent passes away or enters a long-term care facility. Many older people become pack rats simply because their longevity means they’ve accumulated a lot of mementoes, keepsakes, and general stuff. In addition, there are the tasks of turning off utilities and closing other accounts. Of course, locating the life insurance policies and other documents can be a problem. The article gives a guide to determining what you need to do and how to go about it.
It used to be much easier to dispose of estates, experts say. But the slow recovery from the recession has softened the market for antiques and collectibles drastically, according to more than a dozen professionals who handle estate sales and elderly moves. People have curtailed recreational shopping and aren’t moving into bigger homes, stifling demand for furnishings. At the same time, younger homeowners’ decorating tastes have changed in the past decade or so away from the traditional furniture, formal china and silver tea sets found in many older homes.
One of the problems with many estates is the records are incomplete or unorganized. The executor and beneficiaries often don’t find out about all the assets available to them. One ripe source of unclaimed benefits is life insurance. Some estimate that there is $1 billion in unclaimed life insurance benefits. Many of the policy benefits probably are small. People often forget that they receive life insurance through employers, association memberships, and other sources. But sometimes a sizeable policy isn’t known to the beneficiaries.
It’s not easy to find unclaimed insurance benefits. Here’s a guide to the steps you can take to locate life insurance benefits you might be owed. (Subscription might be required.) Some insurers are being proactive in locating beneficiaries, but few are doing it at the moment. The burden is on you to find out if you are owed anything.
The American Council of Life Insurers, a trade group, lists on its website search tips including checking with the benefits office at a loved one’s latest and previous places of employment, or a union welfare office. It also suggests checking canceled checks to see if any were written to pay premiums.
The ACLI also advises checking the mail for one year after the death for premium notices, which usually are sent annually. If a policy has been paid up, there won’t be a notice of payments due, but the company might still send an annual notice about the policy and pay a dividend, the ACLI says.
Also, the group recommends reviewing old income-tax returns, looking for interest income from, and interest expenses paid to, life-insurance companies.
A financial advisor is more than a technician. So is an estate planner. They can’t give you the best advice unless they know your goals. They need to know what you want to do with your money, or what you want your money to do for you. Most people who work with financial advisors recognize that. But a small percentage of those who work with financial advisors actually share their goals and other key thoughts with their advisors, according to a survey for SEI.
According to the survey, 67% of those with $5 million or more in investable assets feel it is very important that their advisors know all their goals, but only 26% feel their advisors actually have that in-depth knowledge.
The survey shows 20% of the wealthy say their financial goals are known only to themselves. Only 31% say their advisor knows about their financial goals and an even smaller group (19%) says their advisor knows their goals and measures against them.
There’s been a lot of attention lately to the issue of what happens to a person’s debts after he dies. It seems there are firms that specialize in collecting the debts of the deceased, often by telling survivors they need to pay and often by not being completely honest.
We’ll have more detail in a future Retirement Watch, but the basics are that creditors can seek payment from your estate for legitimate debts. They get paid before heirs receiving anything, if they file claims on time with the probate court. But if assets were held in the right kinds of trusts or in assets that are outside the probate estate (such as IRAs, life insurance, and annuities), they might not be available to creditors.
If you owe money, you should make clear to your executor and probably to your main beneficiaries whether or not they will be liable to pay those debts. Otherwise, they could end up paying debts of your that they didn’t have to.
Death dissolves contracts, so someone who died owing money will generally not pass that legal obligation on to anyone except maybe a spouse.
If there’s money left behind after paying creditors, the heirs inherit it. But If the estate can’t cover all of the deceased’s debts, liability ends there.
Parents, children and other heirs are off the hook.
The problem is that the survivors don’t know that.
You’ve probably heard the phrase “shirt sleeves to shirt sleeves in three generations” to describe the pattern of how one generation earns the wealth, the next preserves or uses it, and the third loses it and starts over. A key issue for many people today is how to ensure the next generations benefit from their wealth without wasting it. People have tried many structures such as trusts, family limited partnerships, and the like. But what really works is when the generation that earned the wealth teaches following generations about wealth, how to use it, and how to increase or at least preserve it.
One solution to the problem is family governance or a family council. Most families don’t have a formal organization. But when you want to preserve wealth and pass it on, some formal structure is needed. One firm did a lot of research and concluded that informal arrangements aren’t reliable. It’s better to set up a governnace structure as early as possible and use this is include all or key family members in the education and planning process.
Most of all, “a family council or other governance structure can improve the quality of family interactions by keeping family members connected with each other and informed about the status of both the family and the family business,” the authors said. The most successful structures foster communication between members and between generations, the authors said.
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