Why Transparency Matters in Estate Planning

Senior Father With Adult Son Talking About Estate Plan

You likely already understand how important it is to have an estate plan, especially if you have significant assets. You may even have a plan, carefully crafted in conjunction with your estate planning attorney to achieve your goals. There is one step you probably haven't taken, though: discussing your estate plan, and its context, with your heirs. Here's why transparency matters in estate planning, perhaps more than ever.

Your parents may not have discussed their estate planning with you, except perhaps in the most vague of terms, such as where to find their will when the time came. They may have felt uneasy telling you details of their estate plan, and you may have felt even more uncomfortable asking. In the not-too-distant past, money was not something polite people discussed, even among family.

But there may have been another reason for your parents' reticence: a confidence that when it came time for you to manage their estate, you would have the experience and presence of mind to do so. Ask yourself this: are your children prepared to manage the legacy you plan to leave them? If not, how do you plan to change that? The reality is that you cannot do so unless you are willing to be transparent about your estate planning.

Preparing Your Children to Handle Your Estate

Particularly if your estate includes a family farm or business, your children need to know not only how to manage your estate—which may be your more immediate concern—but what the family business means to you.

For millennials, especially, context, meaning, and relationships are important, perhaps more important than they have been for previous generations. Understanding your vision and goals will help equip them to carry your legacy into the next generation, and beyond. You may be thinking of your estate plan in terms of which child gets what. While that is certainly of interest to your children, what really matters to them may be how they fit into the family legacy. Knowing where they belong in the picture will give them the motivation and the confidence to manage your estate in a way that will make you proud.

Discuss with your child their own interests and strengths. How do they envision their involvement with the family business? Would they like to be more involved, but feel that they are in your shadow? Do they feel pressured to step into the family business, although their aspirations lie elsewhere? Whatever you do, do not leave your child a family business he or she is not interested in and is ill-prepared for. You will make your child miserable and guarantee the failure of the business. Instead, develop a business succession plan with your estate planning attorney to facilitate the transfer of the business to someone who wants to manage it, and plan to leave other assets to your child.

On the other hand, if your child or children are willing, even eager, to take the reins, understanding what the business means to you can help make their transition more successful when the time comes. Having your children "buy into" your vision can minimize your own feeling that you have to micromanage how assets and businesses are managed. Your child may approach things differently than you would have, and that can be a good thing—as long as they are firmly grounded in your vision.

Where to Begin

Before you sit down with your children, sit down with your estate planning attorney or financial adviser. Consider what it is you want to pass down to your child besides the asset itself. You should craft a "legacy statement," talking about not just what is being left, but what it means to you. Discuss with your estate planning attorney what other professionals you might want to consult in the process of involving your child in your estate plan.

If you have significant assets such as a business or farm, it is likely that one or more trusts will be involved in your estate planning. Trusts can offer a multitude of advantages, from probate avoidance to asset protection to tax planning, but beneficiaries may see them as an attempt to tie their hands. If your beneficiaries understand why you have chosen to place assets in trust, and that your decision does not reflect a lack of confidence in them or their abilities, they will be more open to accepting the structure of your estate plan.

Will the management of your estate require skills or knowledge you believe your child currently lacks? Expecting them to learn on the fly sets them up for failure, and an alarmingly high percentage of family businesses fail in the second generation already. By connecting them with advisers and professionals who can offer them needed guidance before they have to fly on their own, you are helping to safeguard their livelihood and your own legacy.

Even if your estate does not include a business that you hope your child will manage, it is important to prepare your children for what they can expect to inherit. Contact your estate planning attorney for guidance on not only how to convey your assets, but helping your child to be ready to use them wisely. You may fear the anticipation of a large inheritance will make your child unmotivated or greedy. The reality is that helping them to plan for the wealth they will receive, and to understand what it represents, can draw you closer and increase the likelihood of their success.

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Categories: Estate Planning