High-net-worth families often want to leave a legacy. They worked hard to build their wealth and want their loved ones or charitable organizations dear to their hearts to benefit. They want their success and wealth to have a purpose. What some fail to consider is the potential tension that may ensue over their estate after they pass.
Many of us know families that have been torn apart after a loved one passed away due to differences in opinions and troubles with the estate. The good news is that individuals who have had a negative experience dealing with an estate are often encouraged and proactive to do a proper will and estate planning for their own assets to avoid a similar situation. Through good organization and proper financial and legal planning, families can communicate their wishes with transparency to their heirs.
For today, I would like to share just 2 major pitfalls with that arise in some estate planning:
Lack of Tax Planning
For wealthy individuals who die without a valid will, upwards of 50% of their assets may go to the tax man. Upon death, the estate is deemed to have liquidated all assets for tax purposes. With many families rich in property and cash poor, this can cause executors to have to sell assets in order to pay the tax bill. Determining which assets to sell can cause family tension (think family cottage or business assets).
With effective tax planning, you will be able to minimize estate tax and probate on death, thus leaving more to your heirs and less to the government. Proper planning will also limit the time an estate lingers which can cause tension among family members.
Unfair/Unequitable Division of Assets
It is important to differentiate between fairness and equity when assets are divided. One child may have received a chunk of money to start a business or to purchase a home, so perhaps they should receive a smaller share of the final estate. On the other hand, one child may have spent a significant amount of time helping you, where it may be fair to leave them more than the others. If not addressed, this would certainly lead to conflict and potentially costly litigation amongst beneficiaries, again eroding the estate.
Thomas Deans, the author of Willing Wisdom encourages organized and formal family meetings, with all beneficiaries present, where a trusted advisor outlines the estate plans, wishes and instructions for the transfer of wealth. This way there are no surprises. When everybody is at the table, there is an opportunity for open discussion and questions.
To that end, it is important that wealthy individuals draft and review their wills at regular intervals to determine that the plan still makes sense. The easiest time to do so is when you revise your financial plan. Does my will reflect how I would like my assets distributed? Are my executors and powers of attorney still appropriate? Do they know the work involved? Have beneficiaries been named on registered accounts?
A properly drafted will can help leave more assets to your loved ones without the fighting.
By: Haley Thomas
Vice President, Wealth Advisor, Associate Portfolio Manager, CFP, CIM