Estate Planning Includes Preparing Your Heirs

Napoleon Bonaparte was one of the greatest commanders. His campaigns are studied at military academies all over the world. Yet, he developed few military innovations. Perhaps the principal belief underlying his military success can be summed up in this quotation, which is attributed to him: “Most battles are won or lost (in the preparation stage) long before the first shot is fired.”

Each year Americans spend huge sums preparing to transition their assets to their heirs, engaging high-powered estate and tax planners who set up complex vehicles like family limited partnerships, life insurance, charitable remainder, charitable lead and various other kinds of trusts. Yet, despite the best efforts of top-notch professionals, according to Roey Williams and Vic Preisser in their 2007 book, Estate Planning for the Post-Transition Period, it is estimated that “70% of estates lose their assets and family harmony following the transition of the estate.”

Given the talent engaged, the failure can’t be due to poor design. So why do the majority of plans fail?

Williams and Preisser stated that “the major causes of post-transition failures were discovered to lie within the family.” The unsuccessful families failed mainly because the heirs were unprepared, they didn’t trust each other and communications broke down. In other words, while great attention was paid by the family and its advisors to preparing the assets for transition to the heirs, very little, if any, attention was paid to preparing the heirs for the assets they will inherit.

What do parents worry about most?

Consider the following list, compiled by Williams and Preisser, of the five things parents worry about most with respect to wealth and its effect on their children:

  1. Too much emphasis on material things.
  2. Naiveté about the value of money.
  3. Spending beyond their means.
  4. Initiative being ruined by affluence.
  5. Will not do as well as parents would like.

Now, consider the focus of those concerns. While the typical family worries about those issues, the focus of estate-planning professionals is on taxation, preservation of wealth and governance – not on the transfer of family values. Thus, there is an obvious disconnect between the issues that are identified as most important and where the efforts are actually spent. Therefore, it should not come as a surprise when most plans fail. By acting as the “quarterback” on the financial services team, a good advisor will make sure that the tactical and emotional elements of the wealth transfer are given equal attention.

Are your heirs prepared for their assets?

The following are questions clients should ask to determine if their heirs are prepared for their assets:

  1. Do your children (and their spouses, if any) know your estate plan?
  • If not, what would make you comfortable sharing this information? With your children? With their spouses?
  • What steps should you take to address your concerns?
  • Might there be a plan to provide certain information sooner and other information at a later date?
  1. Have your heirs read your will and other estate planning documents?
  • If no, when do you think is an appropriate time for them to see these documents?
  1. Do your heirs know the family’s net worth, both yours and their own (if they have assets in their name)?
  • If not, when does providing this information become advantageous to you and your heirs?
  1. Are your heirs in communication with your team of advisors (your attorney, accountant, insurance advisors and financial/investment advisor)?
  • If not, would it be useful for family members to meet those people, even if information- sharing is limited?
  1. Have the children been involved in the formation of the investment policy statement, and are they familiar with the investment strategy, the goals and how to manage the assets?
  • If not, when might this involvement be advantageous?