Should You Tell Your Children What They Will Inherit?
So, it is after the beginning of the New Year and you have decided to redraft your old Will and Financial and Health Care Powers of Attorney along with your Living Will or Advance Health Care Directive. The next question to ask yourself is “Should I tell my children?”
The question is not as easy to answer as you might think. Open discussion of estate plans might be a good thing in the right case and, in fact, a November, 2013 article in Forbes by staff writer Deborah L. Jacobs, suggests as much. See “Seven Reasons to Tell Your Kids What They Will (Or Won’t) Inherit,” November 27, 2013, Deborah L. Jacobs, www.forbes.com. On the other hand, some estate planners see full disclosure as a plea for disaster.
True, if your spouse is still living, you might not give much thought to naming the successor executor or successor agent under power of attorney. You really should. Your documents might not be rewritten for several years when it will make a difference. In the alternative, you could review and modify them more often.
I have seen the issue from both sides – the side where the children who are not “preferred” under the Will become hostile during their parents’ lives and the side where children, after the death of a parent, ask why. Most estate planners would tell parents to make an even distribution among the children to head off problems in advance. But how does a parent deal with the issue, for instance, of appointment of children as executors or powers of attorney?
Here are some ideas.
- Arguments in Favor of Full Disclosure. The Forbes article gives reasons for disclosure to children. Here they are briefly summarized.
- Avoid Surprises. Where reasonable explanations can be given, it may make it easier for children to accept decisions they know in advance.
- Refine Your Approach. Maybe the children will have better ideas or maybe you need time to decide trade-offs if one child inherits the family business or if a vacation home could better be handled by setting up a separate entity such as a trust.
- Save taxes. The author considered tax avoidance and lifetime gifts. My personal belief is that federal estate tax avoidance is not a concern for the vast number of families and lifetime gifts can raise their own problems of inequity. Family agreements laying out the terms are better suited to compensating children who offer lodging or services to parents.
- Adjust expectations. If you are deducting for lifetime gifts and loans to even the inheritance among children, you might let the affected child know in advance there is a deduction.
- Explain your reasoning.
- Anticipate disclaimers. Someone might disclaim his or her inheritance – not likely but possible.
- Promote family harmony. The author suggests a number of brief discussions with different family members over time.
- Arguments against disclosure. Some estate planners feel that disclosure in advance is a terrible mistake and would only initiate arguments and hostility well in advance of death or disability.
Here are my thoughts.
First, much depends on the family and on the type of information that would be shared. Sharing information in an already deeply divided family can deepen animosities. On the other hand, where the family has already worked well together, open discussion can clear the air and define roles. Often, for instance, a person in a medical profession is chosen as health care agent while a child with business experience is named financial power of attorney. Where there is concern that someone might be left out, that person might be named as a remote successor or “backup” so that he or she feels he is still part of the overall picture. In most cases, even distribution of assets seems to work best to avoid conflict. However, as stated, a Family Agreement executed in writing during life can cover extra contributions by some family members. Under that arrangement, payment is made as the services or contributions are being given rather than deferred to some unknown later date. There is no one answer for everyone so you need to decide the degree of disclosure that works best for you.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.