The Wall Street Journal – Estate Planning – It’s All About Your Legacy

This article is courtesy of The Wall Street Journal, enjoy:

“Benjamin Franklin said, “but in this world nothing can be said to be certain, except death and taxes.” Unfortunately, estate planners have often taken that quote to heart and acted as though estate planning is fundamentally about death and the avoidance of a resulting death tax. To the contrary, the fundamental purpose of estate planning is to leave a legacy for the living. It is not that death and taxes are unimportant, they just pale in significance to the legacy you leave behind.


While many people have an inherent aversion to talking about both death and taxes, leaving a positive legacy is something we all care about. Unfortunately, numerous studies show that over 50% of Americans have no estate plan, no will and no medical directives. Why do so many people fail to properly plan for what happens at the end of their life? Simon & Garfunkel may have gotten to the heart of things in one of their songs: So I’ll continue to continue to pretend / My life will never end….


The tragedy of failing to properly plan is not visited upon the dead. It is the living that suffer its unexpected and unforgiving consequences. By failing to properly plan, many of us are creating problems for our loved ones that do not exist. Estate planning sounds as if it is for the über-wealthy when in fact it applies to everyone. Below are some of the areas that need to be addressed as a part of the estate planning process.




Make sure you have documents that properly dispose of your assets. If you don’t have a will, create one. While an extreme example, consider what happens if you do not have a will. Assume a childless couple without wills is in a car accident that immediately kills one of them while the other survives for a short time. In most cases, the second-to-die spouse’s family will inherit 100% of their common estate (including any wrongful death claim), while the first-to-die spouse’s family gets nothing. Probably not what the couple would have intended. This problem can be alleviated by a properly drafted will.


Ask yourself if family members are able to handle the assets being passed to them. Do they need a trust so that others serve as gatekeepers for the assets? Trusts are often necessary when assets pass to a spouse in a second marriage, to immature heirs, or to spendthrifts. Here are some ideas when you use a trust:


  • Consider the use of co-trustees, with the idea that each trustee brings some important characteristic to their position (e.g., one family member to deal with the child’s development and another trustee to focus on the proper investment of the trust’s funds).
  • Name two to three successors to each appointed trustee and provide a mechanism to fill any vacancies that might occur in the future.
  • Plan for the possible removal of a trustee. One of the biggest mistakes in estate planning documents is the inability of beneficiaries or third parties (often called “Trust Protectors”) to remove a problematic trustee, with or without cause. The statutory standard for removal of a fiduciary is often such a high bar that heirs are unable to remove a trustee who is inattentive or invests poorly. Even when trustees are removed for cause, the cost can be exorbitantly expensive and is often paid from the trust’s funds.
  • To provide for flexibility, consider giving someone a limited power of appointment to change the ultimate disposition of the trust. For example, assume a client creates a trust for their husband/wife and young children. The trust might provide that the assets pass to the children upon the death of the surviving spouse. But what happens if, 20 years later, the children are spendthrifts, have psychological issues, or have drug problems? If the surviving spouse has a limited power of appointment over the trust, he/she could change the disposition to account for unexpected issues.


A common mistake is the failure to properly name beneficiaries of retirement plans and IRAs. The rules and traps governing the inheritance of IRAs and retirement plans are quite complex. If you are passing significant retirement funds, consult with a competent advisor who can help protect the assets from dissipation (e.g., passage to immature heirs) and unexpected income and estate taxes.


Update Your Documents


Over 49% of all marriages end in divorce. Divorced parties often assume that their divorce decree eliminated any rights of an ex-spouse. Many ex-spouses have happily received retirement funds and insurance proceeds when beneficiary designations were never changed. Every beneficiary designation, estate planning document and password should be reviewed and/or changed when a divorce occurs (i.e., do you want that ex-spouse to access your bank accounts or use your frequent flyer accounts?).


Family Business and Real Estate


A 2008 U.S. Trust report reported that a majority of family business owners were not following a business succession plan. If you are passing a family business, consider passing the business to those who will run it and pass other assets to heirs who are outside the business. Having common ownership of the family business creates an inevitable conflict because of differing financial destinies for each of the heirs. That conflict has destroyed many businesses and families.


To the extent valuable family real estate (e.g., a family farm) or a family business is passed to an heir, have an agreement that provides for a buy-back of the asset. Assume a part of your family business is gifted to your daughter. She marries and dies without descendants. The son-in-law (who may not have been well regarded) now owns the business interest and could be a thorn in your side or demand an exaggerated price to purchase his interest. Upon his death, his new family (who are no blood relation to you) inherits the asset. Trusts and buy-sell agreements can be used to eliminate this risk.


Personal Property


In 30 years of practice, I have been amazed that the single most consistent point of estate conflict is not the cash, securities, or home, but the personal property — most of it of insignificant value. Years ago I had a client whose son came to her ten years before she died and asked for an heirloom grandfather clock. Six months before she died, her daughter asked about the grandfather clock and was also told she could have it. Three days after their mom died, the son was wheeling the grandfather clock out the front door when the sister showed up. They got into a fistfight in the front yard and broke the grandfather clock. They are still not talking.


Talk to your children about what personal property (i.e., furniture, art, jewelry, collectibles) they want to receive. Then prepare a detailed disposition list, perhaps even with photos (i.e., which diamond ring did you intend to pass?). This documentation is particularly important for second marriages. Your will might say “I pass all of my personal property to my children” who are from a prior marriage. But because most personal property does not have any title documents evidencing ownership, a surviving spouse may claim the assets as his or her own.


Incapacity Planning


Most people experience a period of incapacity prior to death. While much of the focus on incapacity planning has been on the elderly, remember that Karen Ann Quinlan, Nancy Cruzan and Terri Schiavo were all young women in their 20s and 30s. Every client should consider having a Medical Directive designating someone to make medical decisions upon incapacity and a General Power of Attorney to handle assets, income and other property issues. Each of these documents should have an initial appointee and at least two or three successors behind them. To minimize disputes, make sure the documents are as detailed as possible. For example, the IRS takes the position that the gift tax annual exclusion (i.e., $13,000 in annual gifts to donees) cannot be made under a general power of attorney unless the document or state law specifically provides for it.


Providing Basic Information


I have often come into a deceased client’s home and found a safety deposit box key — I just do not know which bank holds the safety deposit box. When my father died several years ago, he wanted to be buried in Arlington National Cemetery. I called the Air Force Chaplain at Arlington and was told that I needed his DD214 (discharge papers) to assure burial there. After two days searching, I found his DD214 as a bookmark in a book. We eventually buried him in Arlington a few weeks later. The lack of basic information upon death or incapacity can increase the stress and confusion of your family. Prepare detailed information on your assets, your plans and your advisors and tell your family where to find it. Consider leaving an “Ethical Will” for your family.


Conflict Minimization


There has been an explosion of estate litigation. A pivotal part of protecting the family should be an estate plan designed to minimize the sources of conflict. For example, make sure each choice of fiduciary appointment is examined from the standpoint of both real and perceived conflicts of interest. Having your estranged son serving as trustee for his stepmother is probably not a good idea. Adopting the other ideas in this article can reduce the chance of family conflict arising after your death.


Cost and Competence


You spend a lifetime growing your estate and raising your children, now is the time to seek the best advice you can afford. Talk in detail with competent financial planners and lawyers about your estate plan. Check out attorneys using This website will tell you whether or not the attorney spends a significant part of his or her time in estate planning and how other lawyers rate the attorney’s competence and ethics. Also check out,) whose members tend to be the leading estate planners in the local community. Recognize that not every advisor is competent to provide you proper estate planning advice.


Keep in mind that every inheritance will impact the recipient. Each heir is an individual, whose unique personality will be impacted differently by his or her inheritance. Warren Buffett said the perfect inheritance is enough money so that recipients feel they could do anything, but not so much that they could do nothing. Your estate plan should consider the unique personality of each heir in how you plan his or her inheritance. But be careful that you don’t attempt to rule from the grave. Inheritance is a delicate and carefully considered balance.


At its core, estate planning is about the legacy that you leave behind. Will that legacy be one of conflict, confusion and cost, or a process that positively extends the impact of your life? You don’t have to plan to fail your family; you just have to fail to plan.”