Developing a detailed estate plan is a vital component of the financial planning process. Although children are not always consulted during the execution of estate plans, there are some circumstances where they should be involved, or at the very least, informed of the details. Below are a few of these instances:
Children Given Responsibilities:
When creating your estate plan, certain roles will be assigned to individuals both before and after your death. Usually, couples name their spouse as their attorney-in-fact within their Power of Attorney in case of incapacity while alive, and as the personal representative in their Will in the event of death. However, if the spouse is unable to fulfill these duties, the responsibility usually falls to the child as the successor. It is important to avoid surprising your children with these responsibilities. If your child is appointed to a specific role, make sure to inform them about it so they understand what is expected and discuss their willingness and ability to take on the responsibilities.
Specific Bequests or Trusts:
When Wills involve creating Trusts or specific bequests to beneficiaries, explaining the reasoning behind these actions is important. For instance, in the case of specific bequests, there is a high likelihood of family disputes during estate administration if one beneficiary receives an heirloom that another family member thought they were entitled to (jewelry, artwork, antiques, etc.). As for Trusts, beneficiaries may not fully comprehend the advantages and disadvantages or why a parent would opt to establish a Trust. Although Trusts provide tremendous protection, they also have confusing restrictions that can frustrate beneficiaries. It is recommended to involve children in the planning process to clarify the rationale behind specific bequests and the use of planning tools such as Trusts.
Family Business / Land:
Managing family businesses or inherited land can be complicated, especially where there are multiple beneficiaries involved. Valuing the business and determining each child’s contribution to its growth and management can lead to conflicts. For example, if one child is more involved in daily operations than the others, the difference in their contributions should be discussed beforehand. To prevent any potential family disputes and legal challenges to Wills/Estates, it’s advisable to communicate clearly how you intend to address the differences in contributions to the business. It is also recommended to obtain feedback from all parties involved to arrive at the fairest possible outcome.
