The In-Laws

When drafting up wills and trusts, I sometimes have a client tell me that they want to split their estate into shares for each of their children, but they don’t want the estate to benefit their daughter-in-law or to their son-in-law in the event of their spouse’s passing.  Instead, they would prefer that whatever is left of the inheritance go to their grandchildren.

The intent is perfectly reasonable.  If your son dies and his inheritance goes to your daughter-in-law who then remarries, it’s possible that your hard earned estate will one day end up with some other family that you don’t know.

When I get direction to bypass the in-laws, I often ask my client if they are talking about what would happen if their son or daughter predeceases or if they are talking about a situation where their child survives my client and then dies.

“What does this matter?” is a response I often hear.

“Well, let’s say that your son survives you,” I begin. “If you leave his share of the estate outright to him, then he owns it and can leave it to whomever he wants. If his will gives everything to his wife, then she’s likely to inherit what you left him.”

“We love our daughter-in-law,” my client responds, “but what if she remarries and leaves everything to some new husband? We don’t want that. We’d prefer that our grandchildren receive what’s left.”

“In that case you shouldn’t leave everything to your son outright, instead you should leave it in a continuing trust for his benefit,” I add.  “You can make him the trustee of his own share, but instead of it being subject to his will, you could add a provision that, if he dies, if there is anything left of the share, then it goes to benefit your grandchildren. That way you give him control as trustee and as primary beneficiary, but you can direct it at his death rather than giving his will complete control over what you left him.”

Before the client concurs and instructs me to do just that, I throw something at them that they probably didn’t consider.

“If you leave the assets in a continuing trust, you might want to give your son a power of appointment over the assets so that he can direct who gets them in his will.”

“Why would we do that? Then we’re right back where we started! If he gives everything to his wife, then what’s the point of creating a trust share for our son that would go on to our grandchildren?”

“That’s a good question,” I say. “But consider this – what happens if your son hits hard times economically and dies unexpectedly? There might be considerable sums held in trust for the grandchildren, leaving their mother destitute. You wouldn’t want that either would you?”

“Probably not.” The client says. “So what do we do?”

“A power of appointment does not have to be an all or nothing proposition,” I’ll advise. “You could give your son the power to appoint some portion of his share, but it must be appointed into a trust for his wife that continues for her lifetime. In other words, you could limit how much of his share he can redirect away from the grandchildren (who would be the default beneficiaries) and to his wife, but you can also ensure that upon her death it goes back to your bloodline.”

The power of appointment might say something along these lines:  “I grant to my son the limited power to appoint up to half of the remainder of his trust share to his wife, provided that he exercise the power in such a manner as to direct such sums into trust paying his wife income for her life and then the remainder of the share at her death will revert to my grandchildren.”

I explain that the actual wording of the will would be far more legal in nature, but that would be the gist of it.

While it’s easy to simply go with default language that would distribute all of a deceased son’s share to that son’s children, that might not be the right thing to do, especially when your child is in a long term marriage and your grandchildren are of that marriage. Every family’s situation will be different, so it is important to consider the ramifications of your default beneficiaries should something unexpected happen.

The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Setting Expectations

Like many of you, over the past few weeks we entertained guests from northern locales looking for sun, beaches and good weather. While we enjoy having friends and family in our guest room, it’s also a very busy time of year for me and my practice, so I don’t get to take as much time with them as I would like. Consequently, when we first make plans we often make it a point to set expectations about how much time we’ll be able to spend together and suggest activities that our guests can enjoy on their own.

It’s all about setting expectations. Early communication usually sets the stage for a favorable experience for all.

Expectations are also important when communicating with your loved ones about your estate plan. Discussing one’s private legal and financial affairs is never easy. Consider the burden you could place on whoever is responsible to fill the legal role when you become disabled and are not able to manage your checkbook, investments and other day to day affairs.

I therefore encourage my clients to sit down with the party or parties who will serve as an agent under a durable power of attorney document, as your successor trustee of your trust and as personal representative under your will to brief them on your legal, tax and financial situation. This includes where your accounts are held and how you go about managing your assets. It’s a good idea to introduce your lawyer, accountant and financial advisor to your loved ones who you named to fill these important roles.

If you named a bank or trust company to serve as your successor trustee, it’s always a good idea to form some sort of relationship with them prior to requiring their services. If you are an investment do-it-yourselfer then you might consider working with your named bank or trust company on some portion of your portfolio to determine if you’re a good fit for one another.

To do otherwise with any of my above suggestions risks having a “transition in a time of crisis.” In other words, if the parties and professionals that need to be involved in the event of your disability are only called upon at the moment of your disability, everybody must get up to speed very quickly so that things don’t fall through the cracks. When you name a financial firm as a trustee, for example, and they have no prior history with you then they have no idea as to your investment goals, your risk tolerance, and your general philosophy. Once you become disabled, then you may have no way of communicating these facts to them.

If you’ve named a son, daughter or other loved one to fill this role, it can become equally difficult for them, especially if they have no idea as to your net worth, your estate plan, or any tax or other investment issues that you deal with on a day to day basis.

Many clients fear sharing this confidential information, even with their closest relatives. A major concern is that in revealing your wealth, certain gift or other financial expectations arise. If this is an issue, then perhaps you haven’t named the right parties as your durable power of attorney or as your successor trustee.

More delicate issues arise in blended family situations. When your will or trust continues to benefit your spouse with the remainder interest left to family members not of your current marriage, then you are financial marrying these individuals to each other, often for the remainder of the surviving spouse’s lifetime. Setting expectations in this situation is crucial. If your spouse is your primary concern, it always helps to voice your intent to those affected while you are alive, healthy and competent. Don’t just leave it to the cold words of a legal document. If you aren’t comfortable revealing the extent of your finances, then at least express your intentions in broad terms to squelch future problems.

Communicating and getting ahead of any difficulties is always a good idea. And what’s good for the goose is good for the gander. The conversation should be just that – a dialogue rather than a lecture. Take the time to listen to any concerns that your loved ones might have. After learning of those concerns it might mean a needed adjustment to the course.

Now that summer-like weather is almost upon us, our guests have fled. But that means we may spend a little time up north to enjoy their nice weather. I wonder who might have an available guest room.

The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.