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Welcome to “Trust Us: Estate Planning Wisdom,” the podcast where we unravel the complexities of estates and trusts to empower you with the knowledge needed for effective legacy planning. This podcast is your guide through the intricate landscapes of wills, trusts, and probate. Thank you for joining us — we hope you find the discussions informative, but remember, when it comes to legal matters, always consult with a qualified attorney regarding your specific case.
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Herb Fineburg: Thank you for tuning in.
I wanted to review with our group
Danielle, Max, and myself, Herb a question
that I read in an article recently,
which dealt with sharing the wealth.
The article reads as follows.
I have two sons from my first marriage
and a third son from a later relationship.
The boys are very close.
I love them equally, and I want to create
an estate plan that's fair to all of them.
My current will divides my estate into
three equal shares for each of the boys,
but the mother of my two older sons is
financially comfortable and they stand
to receive a decent inheritance from her.
My youngest son's mother is not well off.
He will probably receive
little from her estate.
Here's the question, should I revise
my will to increase the amount that
I leave my youngest son to balance
out what the older boys will receive
in total from their mother and me?
I worry that my older sons will be
hurt if I leave more to my youngest
son and the letter is from dad.
What do you think, Danielle?
Danielle Friedman: Oh,
I have so many thoughts.
You know, the old adage about
assuming things I think this
falls right into that category.
One dad here is making
a lot of assumptions.
He's assuming that the older son's mother
is gonna leave them a sizable inheritance.
We don't know if mom is remarried.
Maybe she has stepkids that
she's gonna leave money to.
He's assuming that his youngest child
may not receive much from his mother.
I just think this is right for conflict.
Unless he leaves everything in
equal shares to his children.
Without doing that, you're just
setting up a family to have
conflict after you're gone.
Herb Fineburg: Max, what could be
the problem if you leave your estate
equally to all three of your sons?
Max McCauley: I think that is the safest
solution as Danielle said, to avoid
future conflict among the children.
But I'm not unsympathetic to the reasoning
of the father where he wants to account
for either their current wealth, which is
an issue we see at times or their future
wealth, meaning how the three boys would
inherit from mom, as well as from dad.
But I think it's important for the
father to solve the problems now,
meaning leave it in three equal shares.
And Danielle has some techniques
that she can share about what
happens if the boys don't actually
need it or don't want the money.
But I think if you kick the problem
down the road through a variety of
estate planning tools such as pot
Trust, and again, Danielle will
fill us in on that or otherwise
you risk the children fighting or.
A trustee or the executor execut
tricks being left with some very
difficult decisions that would've
been better off made by dad.
So I think the best way to go is
to split it three ways equally,
and that tends to be our advice.
But again, I'm not unsympathetic to the
different levels of economic wealth.
Danielle Friedman: And if the older
children are of such means where they
really don't need dad's inheritance and
there are a couple different options.
One dad could still leave them
the money and they could disclaim
their interests in the inheritance.
And that means that within nine
months of dad's death, they have the
right to say, no, I don't want this.
And it will pass to the
other beneficiaries.
It really depends on what the
estate planning documents say, but
the children would likely get it.
Or because the children are treated
as predeceasing dad, maybe it
would go to the grandchildren.
We don't know.
Another option, like Max alluded
to, is leave it in a pot trust.
And a pot trust is really, rather than
having three separate shares for the
kids, everything would be commingled
into one pot for all three children.
And then if one child has more needs than
the other child more resources can be
expended for the child with greater needs.
I think that defers the decision that dad
should be making and puts the decision
in the hands of a trustee and makes
their life more difficult and complex.
I don't know anyone who really likes
administering pot trusts because you
really have to make value judgements.
Herb Fineburg: Does that create,
in my mind, that sort of creates
an issue between the children?
Danielle Friedman: Yeah.
Herb Fineburg: Will they all be applying
for money from the trustee for their
particular needs and one's needs might be
more foundational, like, shelter, rent.
Another one might be I need a
new car, or we want to, fix up
our house or something like that.
So the pot trust sounds like it creates
tension between the children and
the parent has said, not my problem.
I'm gonna make it your problem.
But in the end, parents really want
their kids to get along once they
left this earth and those are great
relationships between siblings.
Danielle Friedman: Yeah.
We always tell our clients that the most
valuable thing that you're doing with
your estate plan is leaving family harmony
and ensuring that everyone gets along or
hoping that everyone gets along, at least
setting them up for success to do so.
And by creating a pot trust you
aren't setting them up for success.
You may be adding fuel to the fire.
Max McCauley: I would say you
will have family disharmony.
If you don't treat them equally,
they're not going to get along.
I've seen children fight
over very small sums of money
whenever it was put at issue.
Herb Fineburg: Could I throw some
facts to you guys that are a little
bit different than the potential for
somebody having a premonition that his
ex-wife is gonna leave his sons a lot
of money, which he doesn't even know.
Right.
That's really something that's, nobody
should be making their estate plan based
upon facts that are purely made up.
Max McCauley: Beyond their control
Herb Fineburg: and beyond their control.
But let's take the situation which often
comes up similar to this particular,
question that this dad brought up
is what happens when I have children
who have different personal wealth?
Let's use the example,
which is often brought up.
I have three children.
One's a teacher and doesn't
make a lot of money.
One's a doctor and is very comfortable,
and one is a private equity venture
capitalist who has untold sums of money.
The parents don't know
how much money he has.
It's just remarkable sums of money.
How do you divide your estate
plan in that situation?
What would you do, Danielle
if you had that situation?
Danielle Friedman: I would still
leave it equally and one rely on
my children to disclaim if they
really didn't need the money.
I've also seen some families solve
that problem by saying, okay.
I am gonna skip over the ultrawealthy
child, but I'm not gonna leave
their share to my other children.
I'm gonna leave their share to
my grandchildren, to the children
of the ultra wealthy child.
And that way they're still benefiting
each line of the family equally,
but not necessarily enriching the
person who doesn't need the money.
Herb Fineburg: In your plan, you
would, leave it upon the child who
is in private equity, who has untold
wealth to disclaim all or part of
his share so that share goes to the
teacher and to the doctor civilly.
How does that work when they disclaim it?
Danielle Friedman: With a disclaimer,
the beneficiary cannot have taken
possession of the inheritance,
and instead they have nine months.
To notify
Herb Fineburg: nine months from what,
Danielle Friedman: from the date of
death, to notify typically the executor
of the estate or whoever is in charge
of the funds that they don't want it.
And it's really a written, piece of paper.
You probably cite the
state's disclaimer statute.
Every state has one saying, I disclaim my
right to this inheritance, and then you
are treated as predeceasing the decedent..
So in this example, if the disclaiment
had children and the inheritance
was left to them on a per sturpital
basis, meaning if the beneficiary
dies, it goes to their heirs, then
it would pass to the grandchildren,
may not pass to the other siblings.
Awesome.
I see.
But.
The grandchildren could also disclaim
and then potentially could end up
with the siblings, or it just ends
up with the grandchildren, which
isn't that terrible of a result.
And the examples I'm describing are
really, if you're leaving assets
outright to people, which we all
know, we prefer to use trusts.
The trust can also just hold
the inheritance for that
wealthy child and never make
distributions to the wealthy child.
So even though you've left them the
money, it's not really being used and
it's being accumulated for the benefit
of future generation, the family.
Max McCauley: So in that scenario,
Danielle, if the wealthy child didn't
use the money and it was held in trust,
would the money then be for the benefit
down the bloodline for the lineal
descendants of that wealthy child.
Danielle Friedman: That's typical,
but, and the trust can say whatever
the client wants, so that if the client
knows that they have a wealthy child,
they could say that, if the wealthy
child disclaims his or her share goes
to the siblings, it doesn't have to go
to the children of the wealthy child.
It's really customizable.
But yeah, that, that's one solution.
I think, we talked about.
Again, the pot trust scenario,
I just think it creates a mess.
I'm not a fan of it.
I have clients who insist upon it, but
to me it makes trustee decision make
and more difficult than it already is.
Herb Fineburg: A pot trust, if, as I
understand it, is instead of dividing
up the estate into three equal shares
and setting up three trust shares,
you would have one trust pot that
has everybody is a beneficiary.
And then it would be up to the
trustee to decide who gets the
money as opposed to the deceased
parents providing for it in his will.
Danielle Friedman: Yeah.
So if we have, let's say $3
million and three children.
Setting up separate shares and mean that
each child would get $1 million into
his or her share, and what the trustee
does with that share does not at all
impact the other children's trust shares.
With a pot trust, all 3 million
would go into one account for
simplicity's sake by way of example.
And all three children would
share in that 3 million.
So if one child had extraordinary
educational expenses because they were
going to medical school and so on, and
they needed, hundreds of thousands of
dollars for their educational expenses.
The trustee could make that distribution
and pay those expenses, but it would
almost be to the detriment of the
other trust beneficiaries because
there's only one pool of money,
Herb Fineburg: Max, so if you had a
client who came to you and she said,
I have really three kind of assets.
I have a house at the Jersey Shore.
I have a house that I live in
Pennsylvania, and I have my bank
accounts and I want to give.
One house to one child, another
house to another child in my
bank accounts to the third child.
What would you tell that person to do?
Max McCauley: I would
discourage that approach.
Again, I like the approach of three equal
shares because the brokerage account
is likely to fluctuate in value, and
both homes will fluctuate in value.
Although the intent is there because
maybe one child needs the money and
another child would like the house and the
third child would want the other house.
I think that if you left it in
three equal shares and once,
Herb Fineburg: so all assets, they get a
one third interest in all three assets.
Max McCauley: That's correct.
But I think that what will likely
happen then is the executor.
Executor will.
Look at the assets, marshal the assets,
and the children are gonna need to decide.
Do they want money or they want the house.
And if they want the house, then the
one child's gonna buy out the other
two children to get the house based
off of an appraisal of the house.
And the same with the cash.
Yeah, cash is easier to split
three ways, but the homes aren't.
I think that allows the children
then later to see the overall
value and make a determination.
Do they want the home or would
they like all the assets to be
sold so that they can get money?
Herb Fineburg: Good point.
You could make, all the
houses could be sold and they
would all just split the cash
Max McCauley: That way the decedent
doesn't have to worry about.
Did they leave three equal shares,
which is inevitable, not going to
be possible if we're talking about
real estate in different locations
as well as a brokerage account,
Danielle Friedman: and that kind of goes
into another topic for a different day.
But you know, leaving a vacation home to
multiple beneficiaries is always the ends
up being a disaster because inevitably one
beneficiary uses it more than the other,
but they're all sharing and carrying
costs and it inevitably leads to conflict.
This way, everything is
sold, the house is sold.
You wanna beach house, go buy
a beach house with your share.
Herb Fineburg: Or you could buy the beach
Danielle Friedman: house.
Or buy the beach house from your siblings.
Herb Fineburg: From your siblings, yeah.
Danielle Friedman: But that way you're
not, leaving, you're not leaving a fight
for the family, because that's really
what all of these examples boil down to
is, how can you reduce friction among
the beneficiaries after you're gone?.
Herb Fineburg: So Max, what you
always tell me is you can't make a
mistake by treating them all equally.
That sounds like a pretty good theme.
Max McCauley: That's the safest approach.
And it's also, I think the parents
or the decedent needs to take some
ownership of resolving that issue.
With the pot trust suggestion I think that
you're punting that fight to the trustee
and the trustee might not even understand
what they're gonna be involved in.
And I do think it's gonna lead to
disharmony among the three children.
So the three equal shares is the
safest way to preserve family harmony.
One question for you, Danielle.
You had mentioned that we prefer the
assets be distributed or held in trust
for the children or grandchildren
and not distributed outright.
Can you explain why?
Danielle Friedman: Well, that really
does a lot of things for the family.
One, it protects the assets from
the claims of the beneficiaries,
creditors divorcing spouses,
plaintiffs, anyone you can think of.
The assets are protected as
long as the trust isn't placed
for the beneficiaries lifetime.
It also guarantees that the assets
are going to go to whomever the
parent wants them to go to after the
original beneficiary is deceased.
So if parent creates a trust for the
benefit of children, and then it says
that when my kids pass away, the trust
assets continue for my grandchildren
and grand great-grandchildren and so on.
The beneficiaries other than disclaiming
their rights into in the trust, they,
they can't really do a whole lot to
change the provisions of that and change
who the beneficiaries of the trust are.
Herb Fineburg: So that's preserving
the assets for grandchildren.
And if one of the children don't
have any grandchildren, they
wouldn't leave it to their partner,
it would go to the other children.
So you really benefiting your
children entirely with your estate,
which is what you should be allowed
to do with your estate as you wish.
Danielle Friedman: Absolutely.
Max McCauley: So it enables the
parents to ensure their wealth is
transferred down their bloodline.
I will say a planning point that we've
mentioned in the prior podcasts is that
all individuals should look at their
estate plan at least every five years.
And this comes up, especially
in the stepchildren context.
When they made the plan, they might have
decided they don't want any money to go
to the stepchild, and five years later
they might have changed their mind.
And we've seen that before as well, where.
It wasn't five years,
it was 15 years later.
And then provisions were made to
change the state plan to include
the stepchild as the parent got
to know the stepchild better.
So again, planning point.
Look at your documents every
five years, talk to your counsel
and make sure that they actually
reflect your then current wishes.
Herb Fineburg: These are all very heavy
topics that require a considerable amount
of discretion and, decision making.
What we try to add for people, I guess,
is our experience in dealing with
different couples and seeing how assets
are used after people pass along, which
our clients won't see because we see this
over and over again every single day.
So we have some experience in
how to formulate an estate plan.
This has been a great topic and
we'll have to come up with another
topic for our next podcast.
What do you think?
Danielle Friedman: Sounds like we have
a couple ideas that, that are brewing.
Max McCauley: Very good.
Yes.
I have at least one,
but I'll save it for the
Herb Fineburg: next.
Okay, great.
Great.