Mike McGrath, CFP^®, CLU^®, CAP^®, shares guidance for navigating difficult family estate planning decisions and creating a plan that reflects your values and intentions. 

Advice for Navigating the Difficulties of Estate Planning as a Family

Estate planning is one of those important tasks that families often put off until a major life change, health concern, or other unexpected event makes it feel more immediate. For high-net-worth families, waiting too long can leave difficult decisions unresolved and force conversations to happen under less-than-ideal circumstances.

Estate planning often requires families to dig a little deeper than they do with other financial planning matters, and have conversations that may be out of their comfort zone. That often means confronting deeply personal questions about inheritance, fairness, and the legacy a family wants to leave behind.

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 Emotional Side of Estate Planning

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. Many people put off getting their estate in order simply because they are not ready to face that reality. This leads to accounts not being properly funded or planning strategies not being fully implemented, 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 help make sure 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.

A financial advisor can help guide these conversations by providing a neutral perspective and making sure each family member's concerns are heard before decisions are made.

Planning Around Disability and Cognitive Decline

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. In some cases, a special needs trust may be an appropriate tool to help address those obligations without affecting the child's eligibility for government benefits.

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.

In either case, these decisions are best made early, before a health crisis or family conflict forces them upon you.

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.

Passing Down Financial Values to the Next Generation

One's values are what motivate and inspire the legacy they leave behind. When creating an estate plan, you want your values to carry through 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 distribute this estate to my family members?
• If you own a business—should I sell my business before I pass?
• How do I want to approach tax planning within my estate?
• 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.

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 basic level.

When to Involve Your Children and How Much to Share

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 is also 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.

For adult children and heirs, the question shifts from whether to involve them to how much financial detail to share. Some families communicate the broad structure and purpose of the estate plan without disclosing specific dollar amounts. Others prefer full transparency. There is no single right approach. What’s important is that the people involved in your plan understand your intentions well enough to carry them out, and that the level of disclosure feels right for your family.

Charitable Giving Vehicles for Families

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 (DAFs): 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. A DAF also allows you to take the charitable deduction in the year you contribute and then distribute grants to charities over time.
• Charitable Remainder Trusts (CRTs): 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. The remainder passes to a charity at the end of the trust term.
• Charitable Lead Trusts (CLTs): A CLT works in the opposite direction—it distributes income to a charity for a specified period, and the remaining assets then pass to the donor's heirs. This structure may help transfer wealth to the next generation while directing income to charitable causes in the meantime.
• Private Foundations: 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. However, a private foundation offers families the most direct control over how charitable dollars are invested and distributed.

There are many options when it comes to giving. Choosing the right one for your needs comes down to education. Working with a financial advisor can help you evaluate which vehicle fits your family's giving goals and financial situation.

How Families Might Think About Charitable Giving Structures

• Want a simple way to involve family in giving? → Donor-Advised Fund
• Want charitable giving combined with an income component? → Charitable Remainder Trust
• Want charity to receive income first, with assets later passing to heirs? → Charitable Lead Trust
• Want a formal family-run philanthropic entity? → Private Foundation

What Should Families Discuss About an Estate Plan?

Estate planning conversations are easier to approach when there is a clear framework for what to cover. The questions below can serve as a starting point for families working through the process with their advisor:

• What do you want your wealth to accomplish?
• Are there reasons some beneficiaries may receive different assets or amounts?
• Who should take on roles such as trustee, executor, or financial power of attorney?
• Are there family circumstances—such as a disability, blended family dynamics, or a family business—that require additional planning?
• How much should heirs know now about the estate plan and its structure?
• Are charitable goals part of the family legacy, and if so, through what vehicles?
• If there is a closely held business, what should happen to it?
• Who should family members contact if you become incapacitated or after your death?

These are the kinds of questions a financial advisor can help a family work through together, often across multiple conversations as the plan takes shape.

What to Review After a Major Life Event

1. Update Beneficiary Designations 
2. Review Trusts and Wills 
3. Confirm Account Titling 
4. Communicate Intent to Heirs 
5. Coordinate with Your Advisor and Attorney

Coordinating Beneficiary Designations and Account Ownership

One area that often gets overlooked in family estate planning discussions is the mechanics of how assets actually transfer. Beneficiary designations on retirement accounts, life insurance policies, and pay-on-death accounts typically override what is written in a will or trust. If those designations are out of date—for example, if they still name a former spouse—the result may not reflect the client's current wishes.

Account titling matters as well. Whether an account is titled individually, jointly, or in the name of a trust determines how it is distributed. Mismatches between account titles and estate documents can lead to outcomes that the family did not intend.

These designations should be reviewed after any major life event, including marriage, divorce, remarriage, or the birth of a child. A financial advisor can help families identify gaps between what they intend and what the current designations and titling would actually produce.

Working with Your Advisor and Family to Create a Comprehensive Estate Plan

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 some 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.

If you're ready to start or revisit your family's estate plan, EP Wealth advisors can help guide the conversation. Contact an advisor to take the next step.

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