3 COMMON ESTATE PLANNING MISCONCEPTIONS BY HIGH NET WORTH CLIENTS

‘Though well-intentioned, creators of trusts and private foundations have the craziest ideas sometimes. They actually believe their heirs, their descendants, might get along, or even appreciate the wealth which has been left to them.

Here are three common mistakes that wealthy, high net worth clients make when it comes to estate planning. Do you have a will and a trust? Are you having your estate lawyer write a will or a trust for you? Consider the three mistakes and misperceptions below.

One: “Let’s keep the beach house in the family, so everyone can enjoy it together and have fun.”

Yea, right. Like oil and water, many times blood and money, or blood and real estate, don’t mix. A common misperception is that your family members, descendants, can share a valuable piece of property together.

How long will it take before we have fights over what drapes will hang in the front living room? How long will it be before there’s legal action over “who” gets “what” week at the beach house? Never mind the silly stuff like you can’t bring your friends or neighbors and there’s no smoking, even on the porch. ( Substitute, as the case may be, “ski chalet” or “Florida condo” for “beach house.” )

Perhaps it might make more sense to leave a little extra money for particular beneficiaries, earmarked for a fun house. Or, better yet, authorize the trustee of your family trust to have annual or semi-annual family gatherings: paid for by the family trust. Everyone gets a free trip to a luxurious destination and the family can stay together: and then leave peacefully.

Two: let’s create a family foundation to keep the family working together. Reality check: the grandchildren have no interest in weighing grant proposals let alone making grants for good causes, disease research etc. They are more interested in getting Lil’ Wayne tix for the summer concert tour. It’s doubtful that even your own children will want to be involved, unless they clearly have demonstrated such interest, and are on board with your charitable intentions. A common misperception is that your family members will want to actively pursue and enforce the charitable work which you started. Charitable work, grant-making by a family foundation, is (are) a wonderful legacy for posterity. But don’t assume that your family members share your charitable work unless you have witnessed it, sincerely, first hand. You may get more bang for your charitable buck by simply pledging money now and having a performing arts center, or hospital wing, or law school library named after you.

Three: “I’m giving the mountain house, and the artwork, to Timmy, I know he’ll use them and wants them.” What sounds like a generous, thoughtful gift turns out to be a mis-cue: a week after you’re dead,Timmy is listing the mountain house with a real estate broker to get the cash. The artwork: he’s giving that away to his girlfriend of the month. A common misperception is that sentimentality matters. While it does, we all have varying degrees of it, and sometimes our heirs are more sentimental about cash. Timmy’s going to sell the mountain house that was in the family for 40 years and convert it to what really matters to him: cold hard cash. Too bad you didn’t ask Timmy when you were alive if he’d even use the mountain house: or would rather have cash. All too often, high net worth folk don’t take the time to actually talk to their kids or intended beneficiaries about what they want or might like. We assume too much. We think we know someone -especially our own family ! — and what they are thinking.

One of the most difficult things for an estate planning client to do, is to talk to their family about wealth and where it goes, or where it doesn’t go, when you’re gone. Who wants what? What do you see yourself doing after I’m gone? Clients have good intentions, but not everyone, even our own children or those close to us, share our values. It doesn’t mean that our loved ones, our descendants, don’t have values. Not at all. But priorities differ and they change : over time and from person to person. What we like, or think is important, or what we value, may be lost on another. In the end, does it really matter? After all, you’re dead. I think it does. That’s why you are spending thousands on top estate planning attorneys to prepare wills and trusts. As I’ve said repeatedly, since the last tax act, the focus for high net worth clients has shifted from tax minimization to wealth administration. How will your wealth be administered?