A Family Affair: Succession Planning Together to Avoid Disputes Among Children

Talking about estate planning is hard for many people.  Doing this with your children is especially difficult.  On the bright side, parents who choose to be open with and include their children in the planning of their estates may avoid disputes after the parents' deaths that might otherwise tear the family apart.  In the New York Times article " Learning to Share," author David Cay Johnson examines the process not only of planning for your children, but also of planning with your children and the positive results that follow.

In our work with families, we have coached parents on how to approach these issues with their children.  We also bring families together - parents with children (and in some cases, with spouses or with grandchildren) - to review the estate plan in a less emotional setting than the family Thanksgiving dinner.  We encourage the families to ask questions about the plan and we try to provide an open forum where opinions of the different family members can be expressed in a non-judgmental environment.  Without these types of guided discussions, the parents' estate plan is most likely a mystery to the children, which may lead to some anxiety on their part.

It is especially difficult for parents to discuss their estate plan when they have designed a plan that takes into account significant differences in their children's respective abilities, needs or other circumstances. Although it may be painful to discuss this plan with the children, avoiding the possibility of disharmony during the parents' lifetimes should be weighed against the almost certain greater family rupture that will ensue after the parents' deaths, when the children are left free to act out on their feelings of being treated unfairly.  If the parents care about family harmony, they will have to risk some discomfort.

Another problematic situation presents itself when parents decide to leave a large portion of their wealth to charity.  This decision may stem solely from their charitable motives, or may arise also from a wish not to deprive the children of the opportunity to achieve something on their own.  The understandable resentment the children might feel when they learn that their expectations have been largely unmet may be avoided (or at least lessened) if they are informed of their parents' reasoning in advance, and have an opportunity to discuss the plan.  One ameliorating way to deal with this situation is to provide each child with his or her own charitable trust, of which the child is the trustee and can determine to which charities the trust assets will be distributed.  In doing so, the parents' charitable intent is implemented, while still giving each child a lifetime income and a certain amount of control over the assets.  Going a step further, parents may wish to create charitable trusts for the children while the parents are still alive. 

Where an estate contains a family-owned business, planning for the needs and capabilities of each child is especially crucial.  Our experience in family business succession planning allows us to guide parents and their children through the process of determining the optimal structure to allow the business to remain successful and to benefit the family after the parents' deaths.  Depending on the children's varying situations, that structure may be achieved through passing the management down to one or more of the next generation, or by providing for third party management of the company while directing the economic benefit to the children. 

The glue that holds all of these approaches together is open and honest communication about your family's values and how the estate plan fits within that value matrix.  While it may be harder in the short run, experience shows that being up front and honest with your children on how you plan to distribute your wealth is a key ingredient in avoiding family disharmony (or worse) over the long term.  It also gives you the opportunity to explain your motivations in person rather than relying on a written document to express in cold words what you were thinking. 

If you would like to discuss any of the issues raised in the article, or any other estate planning concerns, please contact your Farella Braun + Martel Family Wealth attorney at 415-954-4400 or 707-967-4000.