Estate Planning for Family Harmony

Estate planning is often framed by attorneys as a strategy to avoid probate, minimize estate taxes, and reduce liability exposure. While these are valid concerns, a critical aspect frequently overlooked is the preservation of family harmony. The true legacy parents can hope to leave behind is not just material wealth, but also strong, supportive relationships among their children, ensuring they maintain family ties and loyalty.

Family loyalty, or "social based capital," is an invaluable asset that often gets overshadowed by financial considerations. However, the emotional and relational dynamics within a family can significantly influence the overall effectiveness and harmony of estate planning.

The death of a family member can trigger a range of emotions, sometimes bringing out the best in people, and at other times, the worst—or even both simultaneously in the same individuals. It's a period when family bonds are tested, and unfortunately, not always upheld.

A useful perspective in estate planning is to consider one's children as orphans, regardless of their age. Historically, orphans are vulnerable to exploitation and abuse, sometimes even by their own family members. The real tragedy in many of these stories isn't just the death of the parents but the circumstances the children are left in, which can be akin to "feeding children to the sharks."

The tale of Cinderella offers a stark illustration. Cinderella was left in a vulnerable position not primarily because of her wicked stepmother and stepsisters, but because her father and birth mother failed to anticipate the potential consequences of their deaths. Their failure to protect their daughter's inheritance allowed her birth parents' wealth to be weaponized against her.

In planning for the future, it's crucial to recognize that the landscape your family inhabits will change in ways you cannot foresee. Dynamics such as financial status, relationships, and personal challenges like addiction or abusive relationships can alter dramatically.

Give everything to the spouse

If one's sole concern is for their spouse, then the solution might be simple—leave everything to them. However, if the goal encompasses the broader family's well-being, it becomes essential to account for these uncertainties and dynamics in your planning.

There are a few different ways to give to the spouse. One way is just give everything to the spouse. In Estate Planning, this is known as the “I love you plan.” The deceased spouse just leaves everything to the survivor. It often makes sense, especially when a couple has been married for many years. However, many people have interests in taking care of more people than just their husband or wife. Children are often a priority for spouses. But if a husband and wife have children together, neither needs to worry about the other parent taking care of their children, right? Well, not exactly.

This is the exact problem we had in Cinderella. The mother assumed the father would take care of Cinderella after she died, if she thought about this at all. Perhaps she had no idea her husband would quickly marry another woman with children of her own after his death, then die himself soon afterwards. She would have no idea that her daughter’s inheritance would be used by a step-mother, who would weaponize her wealth against her, forcing her daughter to live a life a servitude and humiliation.

Some part of estate planning is often dealing with the “Cinderella problem”- how do you solve estate planning challenges.

One potential solution is some variation of a trust. A revocable living trust is a mainstay of estate planning in California. It is usually used to “avoid probate.” However, it has a myriad of other uses. One of them is leaving assets in trust. The survivor can get remarried, but that remarriage may be consequences when it comes to some part of estate left by the deceased spouse.

For example, Chuck and Nancy are married and have a child they named Cinderella. Chuck and Nancy do an Estate Plan that passes the assets if any of them pass away to a trust, where the surviving spouse is a beneficiary and then Cinderella is also a beneficiary. The surviving spouse has no ability to change the beneficiary- not to a new spouse, and not to any additional children. Nancy passes away. Chuck then decides to marry Tremaine, who has two daughters, Anastasia and Drizella. After he dies, the estate that belonged to Nancy and Chuck both passed to Trustees named by her parents, for the benefit of their daughter. Nancy, who died first, did not know about Tremaine’s existence, and named her sister Rapunzel, as the Trustee of Cinderella’s trust, until Cinderella is old enough to manage her affairs.

Rapunzel uses the funds for Cinderella in her best interests, making sure she has as rich a childhood an orphan can have while being educated. Rapunzel also maintains close contacts with her extended family, including Chuck and Nancy’s siblings and children. She lives happily ever after.

Considering Family Systems

Family systems involve complex patterns of relationships among children, parents, in-laws, and sometimes business ties that extend beyond the family. Decisions like appointing a trustee can significantly impact these relationships, potentially disrupting family harmony if not handled with sensitivity to the existing familial dynamics.

To foster a positive family environment even after one's passing, estate planning should strive to mitigate negative dynamics and enhance positive relationships within the family. This may involve incorporating neutral, external professionals like fiduciaries, financial advisors, business managers, mediators, and legal and financial experts. These professionals can help navigate the complex emotional and financial terrain of estate planning.

Example:

Tesla, a wealthy businessman has two children, Ford and Farrari. Tesla’s goal is to make sure Ford and Ferrari get along, that the bonds between his children and their children stay strong

while the business and charitable interests he built continues after him. Ford thinks his father Tesla has unfairly favored Farrari over the years, but he gets along fine with his brother nevertheless. Ford’s wife and Tesla’s current third wife don’t get along at all while she tends to favor Farrari’s wife. Ford’s wife and Ferrari’s wife also don’t get along too well, but they do meet regularly as their children all adore one another. While there are perceived slights and occasional blow-ups at family gatherings, Tesla is concerned about future relationships within the family. Farrarri has also followed Tesla into the family business, while Ford decided to go to medical school and become a surgeon.

Tesla, in his estate plan, does not name his wife or either of his sons as a successor Trustee, and instead trusts his affairs to Opel, a professional fiduciary. He also has a business succession plan that provides a fair distribution to both Ford and Farrari. He also has a family meeting with his sons to set expectations.

Ultimately, estate planning should be viewed not just as a legal task but as an opportunity to creatively secure not only financial wealth but also the social wealth of strong family relationships. This holistic approach is crucial in both prosperous and challenging times, ensuring that the legacy left behind is one of unity and mutual support.

Complex versus “simple” estate planning.

Many people look at trusts as something any responsible adult needs to do, it’s a step similar to getting liability insurance, a mammogram or a colonoscopy. Estate Planning is more than being a responsible adult, but one that communicates and executes plans based on well considered goals with love and compassion.

Estate planning is often going to have some level of complexity for reasons that may have little or nothing to do with estate tax planning or probate. What is the difference between a simple or complex estate plan? Having one beneficiary is simple. Having more than one, is complex.

To set up a time with Attorney and Certified Estate Planning Specialist Ahmed Shaikh, click here.