Advice for Navigating the Difficulties of Estate Planning as a Family

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michael mcgrath

true Michael McGrath, MS, CFP®, CLU®

Regional Director/Partner
Valencia, California


Advice for Navigating the Difficulties of Estate Planning as a Family

by: Michael McGrath, CFP®

The COVID-19 pandemic brought many issues to the forefront that had been pushed to the backburner for far too long. One of these common challenges is estate planning. More and more high-net worth families are realizing the importance of having a solid estate plan in place in case of an unexpected event. In fact, according to one study, 32% of people ages 18 to 34 stated that they developed a will due to the pandemic.

However, estate planning requires everyone involved in the process to dig a little deeper than other financial planning matters, and have conversations that may be out of their comfort zone. It is crucial to have an experienced and unbiased third party, like a financial advisor, present when navigating difficult conversations with family surrounding estate planning.

This article will go through strategies for steering through those conversations and how to work with your advisor to form a comprehensive estate plan that fulfills your life goals and emphasizes the values that you carried out through the entirety of your life.


Navigating the sea of emotions

Those who are starting out the estate planning process tend to find the most difficulty with the emotional aspect. It is not as simple as putting pen to paper and mapping out a plan of action in one day. There are several considerations during the process, many of which are rooted in emotional factors.

The idea of one’s own mortality is not easily processed. According to a survey, 10 percent of those without an estate plan say that it is because they do not want to think about death. They put off getting their estate in order simply because they are struggling to face this reality. This leads to accounts not being properly funded or financial planning strategies not being optimized, as well as an overall delay to the estate planning process.

Once individuals move past the initial hurdle of considering their legacy, they must engage their immediate family, which evokes additional emotional barriers. It is the advisor’s job to act as mediator in these difficult conversations and ensure everyone is being heard and respected - as these conversations can get out of hand if not handled properly. Parents have children who are in different stages of life, and therefore may inherit different assets or amounts. Communicating this without causing more harm is not easy, but eventually, families can come to a decision that is best for everyone.

There are unique scenarios that can complicate the planning process and create additional emotional barriers among the family, chief among them navigating arrangements for those with disabilities. A child could be mentally disabled, causing the parent to have difficulty coming to a decision on how to cover their future medical and living expenses, while still being fair to the other children. On the other hand, the parent who is dividing assets may be experiencing a cognitive decline. This tends to create arguments among the children who are trying to make these decisions in their parent’s honor, or who are unhappy with the decision that their cognitively declining parent has made themselves.


When fair isn’t equal and equal isn’t fair

Addressing a complex estate and achieving the legacy you desire starts with determining who will get what in your plan. Although this is stated very simply, it might be the most complicated part.

Let’s say you own a business and you have one child who is involved and another who has no interest or involvement in the business. Child two is going to inherit less from you because the entirety of the business may be going to child one who wants it. Coming up with a plan to make this situation fair for both children can be stressful.

In situations like this one, it is imperative to step away from raw amounts and percentages and talk about what both children need and what speaks to the lifestyles that they individually live. The solution you come up with might not be an equal amount, but if everyone’s needs are met, then no one is at a disadvantage. Even this can become complicated when the rest of the family is fixated on amounts and percentages - this is where an advisor steps in. The family financial advisor can meet with each child individually to go over their financial plan and explain the strategy behind the decision to them and how it will fit into their life.

Engaging the next generation and beyond with your financial values

One’s values are what motivate and inspire the legacy they leave behind. When creating an estate plan, you want to ensure your values are not being lost in the shuffle as your assets are divided among your family. Communicating and instilling your values and expressing them financially to the next generation is very important.

Your financial values contribute greatly to how your plan is structured. There are three buckets that your estate will be divided into - your heirs, charity and taxes. It is your job to determine how much you want to put in each bucket. Ask yourself:

    • How do I evenly distribute this estate to my family members?
    • If you own a business - should I sell my business before I pass?
    • How can I avoid taxes as much as possible?
    • Which charities should I give to and through what vehicle?

Talking through these things with your heirs can help them to better understand your line of thinking and what means the most to you in this process. In turn, seeing your financial values laid out in front of them, will help your children start to think about their own values in both finance and life. This is an important conversation to have with anyone inheriting a large sum of money, and as an advisor, it is important to ensure clients are engaging their children and teaching them to pay it forward.

Individuals often wonder when to start the planning process and when to engage their children. There is no magic number when it comes to engaging children in these conversations, however, how you frame the discussion will be dependent on the child’s age and level of comprehension. It also is never too early to introduce your children to your financial advisor and allow them to take part in family financial planning conversations.

For example, some clients allow young children to choose a charity that they would like to give to, and as a family, they give to that charity together. This teaches kids from a young age that charitable giving is an important family value and an opportunity to be a part of something greater that they feel passionate towards.

Issues can arise down the line, such as when a parent realizes that their children’s values do not align with their own. They worry that their assets will not be put towards charities that they stand behind when they pass. This can be very divisive to families. It is the advisor’s job to bring the whole family back down to earth and remind them that all giving is good. Although everyone might not agree on everything in life, from a moral standpoint, thinking about and giving to a cause other than yourself is always a good thing at a base level.


Giving as a family: Various approaches to giving back

When your children get older and you want to continue including them in charitable giving discussions, you can introduce them to the many different vehicles available for giving:

    • Donor Advised Funds: A Donor Advised Fund is a simple method for giving any amount to a charity. It is easy to use and understand and can achieve most charitable giving goals.
    • Charitable Needs Trust: A Charitable Needs Trust can become a little more complex, but is still quite beneficial. It allows you to set up your assets to benefit you, your beneficiaries and a charity all at the same time.
    • Remainder Trusts: A Charitable Remainder Trust is a vehicle that allows a donor to give a major gift of cash or property to a trust. Then, the trust distributes a fixed amount annually to the beneficiary.
    • Community Foundations: Giving straight through a community foundation is a more hands-on approach to giving and can allow for the donor to feel closer to the cause they are giving to.
    • Full Foundation: When giving through a full foundation, you will run into more work. This method can be complex and involves more tax and legal documents, and requires a lot more tracking on your end.
    • Pooled Income Funds: This is an option when you are involved in a specific organization already, and have pooled income funds are available to contribute to directly.

There are many options when it comes to giving. Choosing the right one for your needs comes down to education. Meet with your advisor and learn more about each and every donation vehicle to determine which one is right for both you and your family.


How to work with your advisor and family to create a comprehensive estate plan

One in nine individuals surveyed, claimed that they have not started an estate plan because they do not know where to begin or who to talk to. The answer is simple: talk to a trusted financial advisor. Your advisor is not only there to show you the ropes, but to work hand-in-hand with your family in creating a plan that makes everyone comfortable and happy.

Crafting an estate plan is more of an art than a science in the sense that numbers and percentages won’t answer all of the questions that need to be addressed. Estate planning requires all of those involved to step out of their comfort zone and be open minded to all of the options that are available. No family is like another, and therefore, no estate plan will be identical to another either. This requires significant dedication and strategy from both the family involved and the financial advisor who is helping them navigate this difficult and complicated process.

A mistake financial advisors tend to make is focusing more on the “how”, rather than asking the “why”. Knowing why a client wants to do something a certain way, can make figuring out how much easier. When you walk into your advisor’s office to begin the estate planning process, be sure to think about the decisions you want to make, and more importantly, why you want to make them.


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