Estate Planning Professionals on “Having the Talk”

Estate Planning Professionals on “Having the Talk”

The importance of discussing your estate plans with your heirs.

If you’re planning to talk to your heirs about your estate plan, then you’re ahead of the game. Not surprisingly, a conversation that includes both death and taxes makes many people uncomfortable. So how do you get started? Estate planning professionals in the Twin Cities have lots of advice on how to present information and take some of the emotion out of a charged discussion. Whether you want to spend your last penny on the day you die or save it all to give to your heirs, discussing your estate plan with the people involved will let everyone know what to expect and set your mind at rest.

Family Values

Estate plan advisors say that the discussion will be easier if your plan is based on your values and not the expectations or desires of others. “This is going to sound funny, but it needs to be unencumbered by emotion or concern for doing what they think is right or concern about hurting feelings,” says Beth Jackson, former president of Anchor Trust, a wealth advisory firm in Minneapolis. By considering your own wishes and desires foremost, you’ll have an easier time explaining why you made certain choices, she says.

There are a number of ways to help communicate those desires. At Wealth Enhancement Group, a financial planning firm in Minneapolis, clients use a specially designed deck of 49 cards. Each card lists a value—such as community, power, family, religion, work, independence—and clients go through a process to whittle the stack down to their top five. Bruce Helmer, a financial advisor and cofounder of Wealth Enhancement Group, says advisors use the cards to figure out client’s core values, creating entry points for discussions of estate planning.

Discussions of shared values and goals are especially helpful in family meetings. Meetings facilitated by advisors are the best way for families to discover values, craft a family mission statement, and identify priorities, says Jim Linnett, managing director of wealth strategy at Ascent Private Capital Management of U. S. Bank, a wealth management firm based in Minneapolis. Advisors can help break down complicated legal concepts, guide awkward, emotionally charged conversations, and offer education on certain topics.

While some families may only need one meeting to disclose the estate plan, others with businesses or partnerships may meet quarterly or monthly. At Ascent, Linnett often facilitates multi-day meetings with a team of legal, accounting, tax, psychology, and financial experts. One tool his team uses is the Real Colors personality test, based on the Myers-Briggs evaluation, to give insight into each family member’s motivators. By highlighting differences in temperaments and communication styles, Linnett says family members can understand one another better. Linnett also uses the Values Edge tool—a deck of values cards that helps family members ferret out their values with the goal of improving teamwork and engagement in the estate-planning process.

Some families wish to distill their values into a shared values statement, which guides how the family will handle money-related issues. This statement could be about philanthropic goals or general beliefs, and some families even have values statements that have been passed down through generations. A values statement can be as simple or as complex as a client wants, and estate plan advisors can help draft one.

One way to emphasize the importance of the family’s past is to draft a family history together, says David Zaudtke, director of wealth management at Eide Bailly, an accounting and business advisory firm in Minneapolis. It’s a fun way to bring the generations together through education, he says. Wayne Schmaltz, a partner at Eide Bailly, adds that family meetings are a good place to collectively develop policies that govern family decisions as they pertain to the family’s wealth and codify how they’ll handle conflicts when they come up.

Philanthropy is often integral to a discussion of values, and some families choose to manage their giving with a family foundation. Because family foundations must give away 5 percent of assets each year, Carol Schleif, managing director of asset management at Abbot Downing, a wealth management firm in Minneapolis, suggests that each family member research and present his or her charity of choice and explain why it deserves dollars. The goal is to make sure that the foundation money is wisely spent, but it also allows children to take ownership in the foundation and communicate their own philanthropic values to the family.

Share the Experience with Travel Trusts

“Travel is life-changing for people,” says Jim Bendt, president of luxury travel provider Travel Beyond in Wayzata. And now people working through their estate plans can share some of those life-changing experiences with their children and grandchildren using a trust created specifically for expenses related to travel. Bendt says travel trusts allow clients to share their love of travel with their children and grandchildren while enjoying tax benefits.

The intergenerational travel trend (prompted by retiring baby boomers taking the family on a “trip of a lifetime”) coupled with grandparents and parents wanting to use their estate plan to leave a legacy, not just cash, was the impetus for creating the first travel trust in the United States. Travel Beyond worked with Margaret Cronin, a partner at Leonard Street and Deinard in Minneapolis, to develop the travel trust.

Bendt says the trust is drafted by Cronin as part of a client’s estate plan and can be as restrictive (e.g., $10,000 is allotted per heir for a trip to Italy) or as open (allowing heirs to design their own travel plans) as desired. A letter of intent stating the intentions of the trust and suggested or required travel plans may be included with the trust documents. Travel Beyond works with clients and their beneficiaries to develop a “wander list” of places and activities to be included in the travel trust. The trust can provide for family or individual travel.

“It’s a way to help children and grandkids develop their worldview,” Bendt says. He adds that clients see it as a good way to help shape the character of their families. The travel trust taps into the gift tax exclusion, which says individuals can give up to $13,000 per year per beneficiary as a tax-exempt gift. If the travel is done for educational purposes through a qualifying organization such as a college, it’s not subject to the gift-tax limit if payment is made directly to the institution. The funds held in trust can be used while the client is alive for family trips, or after the client dies.

—K. W.

 

Helmer says donor-advised funds—investments in a charitable organization where the donor maintains advisory privileges regarding the distribution of funds—are popular in his practice. “Mom and Dad get the tax deduction, but they’re involving the adult children by saying, ‘When we leave this world, you can decide how the fund’s proceeds get split up,’” Helmer says. “That can be a very rewarding experience and create a connection between the parents and child and the charity.”

Put It Out There

Discussing estate plans also may involve issues that you’d prefer to ignore. Maybe you don’t want to talk about your money situation, or you anticipate an existing schism in the family could be exacerbated by talk of money, funerals, and heirlooms.

Take a family with four children: One child needs more monetary support than the other three, who have successful careers. Couple A may choose to leave more money to the first child because he or she needs it most. Couple B may decide that they want to reward the three children who have shown fiscal responsibility by giving them more money. With either scenario, how do you explain your decision? Should you?

Parents ultimately need to buck up when it comes to unveiling the estate plan, says David Ness, an attorney with Fafinski Mark & Johnson, a law firm in Eden Prairie. “The relationships are going to be much more fractured if it’s not addressed at that point,” he says. “The facts are the facts.”

Some tough conversations can benefit from the participation of a family wealth coach, such as the organizational psychologist at Ascent, who helps people talk through issues in a nonthreatening and nonconfrontational way, Linnett says. Estate advisors are also there to keep discussions from veering off course.

Many parents aren’t discussing their estate with their kids at all. Schmaltz cites a survey by U.S. Trust, a wealth-management firm based in New York, of high-net-worth baby boomers that found that only one-third of wealthy families have fully disclosed their estate plan to their kids, one-half have partially disclosed their plans, and 15 percent have not discussed it at all. Respondents worried that their kids would become lazy and make poor decisions if they knew they had some wealth coming their way. “The children should have some idea of what’s coming financially to them, and also when it’s coming,” Schmaltz says. If they don’t know what’s coming, they may not be prepared for it.

“My own theory is that if you do a good job of parenting and you teach your kids a sense of responsibility and you build character in your children, money is not going to ruin them or spoil them,” Helmer says.

One way to discourage dependence on inherited wealth is with incentive trusts. Zaudtke says he’s seen it done where the trust provides a maximum distribution equal to 50 percent of a child’s W-2 or self-employment earnings.

Jackson says that it’s not always necessary to disclose every detail of an estate plan at once; she suggests baby steps. For instance, a document of intent—a non–legally binding letter to the kids telling them how you really think and feel—can be used to disclose some information. A document of intent is also a more comfortable way for older generations—who often feel that money discussions are taboo—to communicate with their children.

Don’t plan on saddling your kids with a stack of estate planning documents—they probably won’t need it. Many planners suggest giving children a summary document that includes the location and contact information for each major account—bank, investments, insurance, trusts—and describes where all of the official planning documents are kept (at a lawyer’s office, for example). Ness provides his clients with a binder containing an estate plan summary and suggests that clients include a financial statement for important accounts to make the information easily accessible.

Business Succession

“With family business–succession matters, communication is even more important because you’ve got the same considerations regarding the assets being distributed from the estate, but you also have the primary considerations of business continuation and business succession,” Ness says.

Family business–succession situations, where some of the children are in the business and some aren’t, have been the source of Ness’s most contested estates. He says some kids may feel the estate is unfair, but if parents communicate their business-succession plans before they die, kids who perceive they are being slighted will have a harder time contesting the will in court.

Also, a business’s governing documents will likely contain a formula that determines the value of the business, which in turn dictates who gets what upon an owner’s death. Other business succession issues that loom large include deciding who’s going to manage the business upon the owner’s death, and what portions of the business will be distributed within the family or to a third party. Ness suggests reviewing the business-succession plan yearly.

The same communication techniques used in general estate planning are applicable in business-succession planning, but a whole different plan and set of documents must be made available to children—especially those not involved in the business—in an easily understandable form.

While financial planners simplify their clients’ lives and help make decisions that align with their values, estate planning can still be daunting. Advisors have many tools to assist in explaining your estate plan to your kids, but perhaps the best advice they have to offer is this: Listen to your gut. Any worries you have about discussing your estate plan with your children may be allayed by a receptive audience that’s been waiting to hear from you.