Estate Planning Requires Frank, Open Family Discussions

Question: I have noticed how some of my friends’ kids are squandering their inheritances. How do I make sure my wishes and expectations are followed when I pass on my wealth?

Answer: Many wealthy individuals give significant consideration to avoiding estate taxes, but another important consideration is ensuring your legacy is respected.

While the trust and legal structures created are essential, an important part of estate planning is the culture and respect for the inheritance that you create within the family.

This means gathering your heirs together to talk about wealth—and your expectations.

While many folks feel uneasy sharing this information, remember that transparency and communication lead to understanding, whereas silence and secrecy lead to confusion and sometimes mistrust. If nothing else, it’s much better for you to have the conversation with your heirs while you’re alive, then for an attorney to have it after you’ve passed. These conversations can become the cornerstone of your estate and can have a lasting influence on your heirs.

As a wealth-management advisor, we have hosted many of these family meetings. Not every concern or issue was resolved, but each family’s situation improved as a result.

Obviously, legal estate documents remain essential in providing the written framework for your wishes and to reinforce your family discussions. Even if you intend to split your assets equally among your heirs, trust provisions don’t have to be identical. For example, you can tailor your trust to restrict distributions to an heir who has shown a history of being a spendthrift. One cautionary note: Be careful about being too restrictive; having a high hurdle or narrow focus may protect the assets, but it may also cause unintended strife for the heir.

In nearly all cases, hiring a professional trustee, such as AMG, should be considered because they can help protect against wealth being needlessly squandered. Professional trustees require heirs to provide reasons for the requested distributions. Your estate documents can place a high or a low hurdle for a distribution, but either way it still requires more thought and planning than the heir just writing a check.

You know your family better than anyone else involved in the estate planning. Talk to your family, trust your instincts, know which heirs are reliable and which need safety rails.