February 1, 2007
Written by Staff at The Centre for Mediation & Dispute Resolution
Estate Planning. Part Two: A look at Harry’s and Wendy’s Decisions
Harry and Wendy have some difficult estate planning decisions to make. To fully explore their options, which we discussed in last month’s article, Harry and Wendy decide to try estate mediation. This decision was based on the recommendation of a divorced friend, who had experienced the mediation process. Harry and Wendy want to explore each of their estate plan options as well as the ramifications of each choice. They need a way to structure the decision making process, and stay on track. Previous attempts had ended in disagreement and had ultimately immobilized them. They did not see any good choice.
With the exception of certain charitable and specific bequests, Harry and Wendy want to leave their accumulated assets and possessions to their children. They also want to take advantage of appropriate tax planning. They want an estate plan that will not create undue burden on, or discomfort for, any of their children. They want an estate plan that sends a positive message. How can they accomplish this? What is “fair?” What is “right?”
With the help of a professional mediator, Harry and Wendy discussed the issues that were creating problems in coming to a decision about their estate plan. At the suggestion of the mediator, they decided on a course of action that they had not previously considered. They decided to bring their children into the initial discussions. First they met with their three oldest children and the mediator to discuss the dilemma they were having about their youngest son. Mediated discussions revealed that all three of the older siblings felt a strong familial, moral, and loving obligation to protect and help their younger brother. They also had the same frustrations with him as his parents did, but this was not something the family had previously been comfortable discussing. They too acknowledged the dangers for him of unfettered access to assets.
Next, Harry and Wendy met with their youngest son and the mediator. He initially expressed substantial resistance. Several meetings were scheduled and then canceled. The thought of his parents’ death was especially painful for him. He also felt uncomfortable for having been so dependent upon them in the past. More poignant, he expressed disappointment with himself, knowing that his parents had specific concerns related to his future, as well as the way he had thus far conducted his life. This saddened him, but also led to serious introspection, something he had previously avoided.
Finally, with the support of his sister, with whom he was particularly close, he agreed to the meeting. The discussion was honest and painful, but productive. Mediation is not a place for blame, or shame; it provided a safe environment for Harry and Wendy to express their deep concern and love for their son. Ultimately the decision belonged to Harry and Wendy, but after this discussion, they felt more comfortable that, at least for now, this son’s inheritance would be placed in trust. An impartial trustee, acceptable to him, would be appointed. They explored possible options, and decided on an older cousin who was an attorney. They also decided to structure the trust so that there were periodic disbursements of interest that their son could count on and have independent control over, but that the principal would be distributed only for his health, education, and welfare at the discretion of the trustee. Further, the Trustee was empowered to turn the principal over to this child, in whole or in part, if certain performance objectives were met in the future.
This decision both protected this child, and gave him some control over his future. Another result of the mediation process, and perhaps the most salient, was that this youngest child decided to begin therapy. The mediation process brought certain issues to the foreground that had been buried for years. Denial had been a powerful adversary.
Based on their communication success, Harry and Wendy decided to meet individually with each of their other children. It was clear that each one’s needs were different. It surprised Harry and Wendy to realize that their estate plan could and should be tailored to each individual child. They had never considered this approach.
They met first with their daughter, a stay-at-home mother of three. Discussions revealed a nagging concern she had about saving enough money to pay, at least a significant portion, of three college tuitions. Her husband was successful in many ways, but their financial resources were limited. It didn’t seem advantageous to structure their estate plan in the same way they had for the youngest son. Her parents realized that she would likely need to use a substantial amount of her inheritance to pay for three college tuitions in order to avoid taking out loans. Harry and Wendy were able to invest in tax advantageous college savings plans now for their grandchildren. This would assuage their daughter’s worry, and, if they were still living, they could pay college tuition bills directly to the college without incurring gift tax liability. The remainder of her inheritance would be distributed to her in a lump sum, upon their death.
Harry and Wendy’s firstborn child is a single, successful businessman. He had benefited financially during the dotcom boom. If he is savvy about his current portfolio of investments, he never need to worry about his financial well-being. Should he be left nothing because he doesn’t need it? This was an easy decision for Harry and Wendy. He would receive an amount equal to the others. This child was aware of his sister’s financial concerns. During mediated discussions with his parents, he expressed an interest in helping his sister, and his other siblings, who were not in the same economic position as he was. He was able to assure his parents that, should he feel comfortable at that time, he could disclaim his portion of his inheritance, and Harry and Wendy were able to structure their estate plan so that if he did so, his portion would be divided among his siblings. Harry and Wendy were so pleased to see the sensitivity, caring and love their son expressed toward his siblings that Harry and Wendy appointed this oldest child executor of their estate.
The second child is a teacher. He is married, and has no children. He is a special education teacher working exclusively with emotionally disturbed adolescents. He receives a great sense of satisfaction from the work that he does. It is his passion. He knows that he is unlikely to make a lot of money in this profession, but that has never been his goal. He has no pressing financial needs. He lives modestly and doesn’t particularly care about material possessions. However, this son was able to communicate in the mediation meeting that he would like to start a summer program for children like the ones he teaches. He’s been able to help many kids in the past and wants to continue. His immediate needs are to have enough capital to get a program started. He might need to partner with another organization to allow him to develop his program. He may also need help from experienced grant writers and the like. This would not be a huge financial undertaking. Harry and Wendy were able to structure their estate plan to create a trust to give him access to funds (under their control) to begin investigating his dream camp. This would permit him access to his “inheritance” early, and allow him to have access to enough capital to lay the foundation for this laudable dream.
Harry and Wendy were greatly relieved. The mediation process had led them and their family to places they had never anticipated. The estate plan looked nothing like what either of them imagined when they started this process. Previously, the plan had seemed so one-dimensional. This plan addressed each child’s individual life situation and needs. It opened a dialogue within the family, the likes of which they had not seen in years. It affirmed for Harry and Wendy that they had been good parents who were blessed with good children. This was clearly evidenced by their children’s behavior toward one another throughout the mediation process. Harry and Wendy’s estate planning mission was accomplished!
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