Discussing Planning with Family

     Last week I wrote about the increased privacy that clients gain from using trusts in their estate plan. Using Living Trusts, clients who choose to make different distributions to their children can keep the value and terms of those distributions private from other children. While this increased level of privacy can prevent discord in some situations, clients should consider how much information is too little information when discussing estate planning with their children.

     As we have said many times before, estate planning is an ongoing process. After documents are drafted, signed, and the funding process is complete, there is still the implementation of the plan to consider. By discussing their estate plan with beneficiaries, clients can help those beneficiaries understand the reasons for their decisions and ease the beneficiaries into the implementation and administration of the plan. This is not to say that clients need to provide their beneficiaries with the clients complete financial records or inform the beneficiary of the size or terms of their eventual bequest. Instead, clients can use this opportunity to provide the beneficiaries with a general sense of the scope of the client assets and the reasons underlying decisions regarding distribution of those assets.

     For example, for clients with a relatively small estate it is important that all the children understand that their parent does not have significant wealth and that the cost of medical expenses are likely to substantially impact those assets remaining after the parent passes.  While the client may make it clear to children that the intent is to distribute any remaining assets equally to all children, it is important they understand that an equal share may not amount to much. I

     Alternately, for clients with a substantial estate who opt to hold assets in trust for beneficiaries to be distributed over their lifetimes, and perhaps their children's lifetimes, it is important that those beneficiaries understand the reasons their parent has for making this decision. In both of these situations, communication with potential beneficiaries can reduce the chances that a beneficiary will challenge the validity of the parent’s estate plan because they understand that all beneficiaries are being treated equally and that there are long-term fiscal benefits of their parents' plan.

     It may even be more important for the client to discuss estate planning documents with the successor trustee so that that fiduciary understand the reasoning behind the document provisions and can appropriately make decisions with full knowledge. The trustee can also clarify the reasons for the document provisions to the beneficiaries.

     In all cases it is important that children understand who is responsible for administering an estate plan after their parent passes away, what is expected of that person, the location of the parents’ estate plan documents, and information about their parents’ legal and financial advisors. While these discussions are not always easy, they are an important part of the estate planning process that clients should not neglect.

Matt Ferrara