Inheritance can be a sensitive issue, primarily for clients of course but also for their advisors. For clients, there may be the shock of death, the shock of sudden wealth and in some instances the dagger of disinheritance. Advisors often fall into two camps when it comes to these sorts of issues. Some feel their job is to offer dispassionate estate tax planning and to distance themselves from emotional issues. Others embrace the softer side of finance and are all too eager to help clients sort through family issues.
In reality, no a priori approach of this kind will suit every client or circumstance. Some clients want their advisors’ cool, analytical judgment and others want deeper involvement. What advisors can and should bring to the table in addition to their left- or right-brain orientation is experience. That is because most clients will only go through inheritance issues once in a lifetime, whereas an advisor who’s been around will have seen a variety of scenarios. (And until he has sufficient experience, an advisor would be wise to consult other professionals.)
Beyond technical estate tax issues, which of course are crucial and must be mastered, the knottiest issues tend to arise when a parent disapproves of the life choices, character or personal responsibility of one or more heirs. While such parents would not want to subsidize in death behaviors they object to while living, people experienced with these issue attest to the devastation felt by children who are disinherited. A less extreme tack taken by testators is to tie money to cessation of behaviors viewed as undesirable or irresponsible. But from the heir’s point of view, this can seem punitive or manipulative and can inflame a strained relationship that continues even after the parents’ death.
Trust officers and professionals experienced with these issues counsel that one can achieve the same intended results in a way that strengthens relationships. Instead of, “Our heir will not receive $X until he gets married,” a will or trust could say something to the effect that, “Aware of the financial burdens that occur with major life changes, our heir will receive $X after getting married, and an additional $X upon the birth of each child.”
For children with a record of financial irresponsibility, one strategy is to divide the distributions over time: “Aware of growing financial needs as one advances through life, our heir is to receive 25 percent of the assets at age 30, 33 percent of the assets at age 35 and the balance of the assets at age 40.” There is no scent of punishment or disapproval. But the testator privately recognizes that the first distribution will be squandered, hopes the second will be put to some good use and expects the third at least will be managed wisely. This approach is not fool proof. It is an expression of hope and trust. But at the risk of lost money, it can yet save a relationship that continues — sometimes with great intensity — even after death.