When an Estate Plan Might Not Be Enough

If you have ever spoken to an attorney and asked “What are the worst court fights you have seen, or studied in law school?” The one-word response is almost always – “Family.”

While that answer is disheartening for those of us who love and trust our family above all others, it is easy to see why it frequently occurs. It also demonstrates the crucial need for you to prepare. Correct preparation could mean that your family doesn’t suffer the fate of too many families -broken relationships, replete with irreconcilable emotional and financial damage.

Where There’s a Will…

A carefully prepared Last Will and Testament (a will) can alleviate much of that potential damage. A good estate attorney can guide you, enabling you to provide your estate with additional levels of protection to try to prevent disputes among surviving family members. Yet a will has limits. A living trust can allow the estate to transfer assets to recipients without the costs and time of probate. Unfortunately, there are still dangers out there.

Make a Strong ‘Executor’ Decision

Every will has an executor. Most financially successful people wish to see their wealth create a legacy for their children and grandchildren. They often choose one of their children as the executor of their estate to see that assets are properly dispensed, and those included in the will are given their share.  Sadly, this is where the problems often begin.

While most executors will be responsible and honest, some will not. For the dishonest executor, assets can be misappropriated or hidden, and the intent of the deceased can be ignored, often without repercussion. Taking a wayward executor to court is likely to be expensive and time-consuming…with an uncertain result.

Worse, the additional emotional strain of sitting across the table from a brother or sister, more often than not can lead to permanent destruction of the family’s relationship. Hardly the outcome a successful professional or business owner was expecting.

Even for the honest and responsible executor, the pressure placed on he/she to make certain decisions that benefit one sibling at the expense of another can create similar levels of family discord. For example; a long held family summer home. Some siblings will want to sell the summer home because they need the cash, while others do not. An executor can choose to compel those who wish to retain the summer home to buy out the other siblings, but what if those wishing to keep the cabin can’t raise the funds or obtain a loan? Who wins?

Even if the siblings are well intentioned and try to come to some arrangement, some issues can become too difficult for the inexperienced executor.

Consider a Third-Party Trustee

A professional third-party trustee can be a valuable asset. Their purpose is to create clear objectives, and help set guidelines with the estate attorney and the client. When the time arises for the trustee to act as an executor, they are bound by the terms of the will. A third-party trustee will dispatch their duties without emotion and will proceed according to the laws that govern their profession. They are licensed and subject to audit, so they are held accountable. Better your children fight with the executor than each other! Third-party trustees can even work with your children to ensure that all of them are included in the oversight, so no claim of unfairness can be leveled.

A Trustee is a Necessity for Business Owners

If you are a business owner, the issue of complexity can dramatically multiply. For the executor, experience and competency are an even greater asset since such levels of knowledge are less likely to be found among family members. Business planning decisions, such as business valuations, buy/sell agreements with partners, and liability management can overwhelm those not versed in the operations of an ongoing concern.

If one or more of your children is involved in running the business, while other children are not, the problems can compound and escalate. Accusations and mistrust can surface very quickly if the perception is that those not involved in the business are being unfairly treated, whether true or not.

An experienced third-party trustee can have a business valuation prepared by a licensed professional who will work with the family’s CPA and wealth advisor to ensure that transparency and objectivity are maintained throughout the process.

Your Business is Your Biggest Asset

Businesses are not like homes; harvesting the value of your business for the benefit of each beneficiary can be very challenging. Lending sources will likely need to be secured if the buyers are internal to the organization, while buyers will need to be found if the business is to be sold to an outside interest. Either way, management will need to ensure continuity to avoid a substantial drop in the value of the business due to poor planning. A good estate plan created by a solid team of professionals will be indispensable to ensure that each family member receives the wealth you have created for them.

Still Not Convinced?

We have a litany of clients who have shared histories of broken families with us. People who haven’t spoken to each other in years. People who now have nothing but contempt for those, who at one time, were the those they cared about the most. Stories of one sibling cheating other siblings, leaving them empty handed. Children left out of the proceeds of the estate at the hands of a step-parent, or vice-versa. In each case the story always ends with: “Mom and dad would never have wanted it like this.”

Business owners are among the most successful people in our country, but they often are the most vulnerable. A business owner’s best defense is to have a business plan and a personal financial plan that is regularly updated by a team of professionals. Specialists with the experience to ferret out problems before they occur, and before it’s too late.

Let’s Have a Conversation

Call us at Modernize Wealth at 480.346.1283 so we can start a conversation to put you and your business on a path to success. You can also email us at hello@modernizewealth.com if you have questions, or just want to discuss further.