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Getting Your Affairs in Order—Procrastinators Beware

Reflecting on my work as a Trust Officer over the past 20 years I have truly been blessed with many wonderful relationships. The majority of these involve working with families. It is fascinating to learn about family histories, and to observe the many different varieties and dynamics of family relationships.

One of my most disheartening observations, though, is watching the occasional transformation of a caring, close family into groups of bitter rivals. While this doesn’t happen often, it is very troubling when it does, especially because the causes of most disputes are usually easily avoided. We would like to help you and your family avoid potential tension and disagreement over financial issues that often arise during times of transition. Consider the following example of a situation ripe for creating family discord, and our recommendations for how to avoid it.

John and Jane are both in their 70s, retired and have three children: Tom, Dick and Harriet. Dick and Harriet are married with children, and both live out of state. Tom is single and lives near his parents. Their family is close with the exception of Harriet’s husband, who doesn’t get along well with the rest of the family.

John and Jane have assets totaling about $1 million, including the value of their home. They have a rich family history and hold a number of family treasures that have been passed down to them from their parents and grandparents. John and Jane would like their assets to provide for their support during their lifetime, with any remaining assets to go to their children in equal shares.

As the years progress, John’s health fails and he is unable to manage his family’s finances. Jane has little experience handling the finances; her focus is on the care of John. Following John’s death, son Tom agrees to serve as Executor and settles the estate, which has all assets pass to Jane. This process takes him a great deal of time, primarily because the finances had been neglected in the past few years and are not well-organized.

Jane, now on her own, needs assistance to manage her finances and she asks Tom to help her. Tom doesn’t have a financial background, but he reluctantly agrees to help his mother. He does some research, selects a few stock mutual funds with impressive track records, and moves $500,000 from various bank accounts into these mutual funds. One year later, Jane dies. At the time of her death, the $500,000 worth of investments has declined in value to $425,000. Other assets include the house, various personal properties and a checking account with a balance of $50,000, held as joint tenants with rights of survivorship in the names of Jane and Tom. Tom again serves as the Executor of her estate.

Tom meets with Dick and Harriet to discuss the distribution of the estate and gives them a list of the assets. They agree to sell the house and the mutual funds and make an equal distribution of one-third to each child. Although Tom is entitled under law to receive the full amount of the checking account, he plans to divide it into equal thirds.

Harriet shares this information with her husband. He questions why her mother was holding such aggressive investments and discovers that they declined much more than the general stock market during the past year.

Harriet passes along this information to her brother Dick, and they question Tom, who admits his mistake but explains that he was only trying to help. Harriet, through the urging of her husband, suggests that Tom compensate them for a portion of the loss. Tom is offended and can’t believe they want him to give up part of his share, after all of the assistance he has provided his parents over the years, while Dick and Harriet had done nothing.

When it is time to decide how the family heirlooms are to be divided, an atmosphere of animosity prevails. Tom’s claim that he was meant to have a family portrait painted by his grandmother is disputed by Harriet, who states that it had been promised to her. Tom responds by rescinding his offer to divide the joint bank account with his siblings. Discussions proceed downhill from there, accusations fly and feelings are hurt at a time when the family most needs each other to mourn the passing of their mother.

This illustration is one of a number of scenarios which can result from poor planning. How can this situation, and many others like it, have been avoided?

The key to avoiding family discord due to financial issues is to carefully consider any potential sources of conflict or disagreement and eliminate them early on. John and Jane made some basic planning errors:

  • They had no plan for the management of their financial affairs in the event of John’s disability or death.
  • Solution: Execute a Power of Attorney agreement or a Revocable Living Trust that appoints a knowledgeable and experienced individual or organization to manage your financial affairs. Avoid naming a family member if they are not sufficiently skilled for the tasks at hand or if you believe there is a possibility for conflict, regardless of their abilities.
  • Jane established a joint account with Tom so that he could help her pay bills.
  • Solution: Name Tom as her attorney-in-fact under a Power of Attorney agreement, authorizing him to make deposits and write checks on her behalf. To avoid probate, Jane could have held the account in her individual name 'In Trust For' (ITF) her three children.
  • John and Jane did not provide clear, written instructions designating which child should receive various family heirlooms.
  • Solution: Hold a family meeting between parents and all of the children at which time a summary of assets is disclosed and the parents’ wishes as to the disposition are clearly communicated. If there are any perceived unequal distributions they can be explained at that time.
  • John and Jane never organized their financial affairs.
  • Solution: Take the time to establish an organized system for all of your financial affairs that will make it easier for your spouse, child, executor or trustee to provide assistance or take over, in the event of a death or disability.

With the beginning of a new year, many of us resolve to take actions that will improve our lives or those of our friends, family and community. Let us know if we can help you put your affairs in order and in the process, preserve family harmony and achieve your planning objectives. It is a worthwhile investment of your time in your family’s future.

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