At the National Academy of Elder Law Attorneys' Advanced Elder Law Institute in Wichita, Kansas, attorney Tim O'Sullivan presented a session on how to promote family harmony in the estate planning process. O'Sullivan, who is a partner with the Kansas firm of Foulston Siefkin LLP, admitted that this is something he didn't pay much attention to for the first 20 years of his 30 years of practice. But according to O'Sullivan if you ask most clients what is more important -- family harmony or the amount of assets they leave their family -- most will answer family harmony.
O'Sullivan said the most important area to focus on is in the naming of a financial fiduciary, such as a trustee or attorney-in-fact. O'Sullivan has found that when a client with two or more children names one child as a fiduciary, significant problems arise about a quarter to a third of the time. He believes that in such cases attorneys should counsel their clients to name an outside party rather than a child as a financial fiduciary. Clients often reject this idea because they believe it should be a family matter, but O'Sullivan explains to them that it is a legal matter. By going through the risks and costs of naming a child as a fiduciary, he has reduced the incidence of naming a child as a fiduciary from 80 percent to 20 percent.
O'Sullivan believes children do not work well as fiduciaries because it is hard for the child to be objective; children often disagree over how long the estate should take to complete, the selling of assets, and the division of personal property; and children don't communicate with each other well. If a child doesn't handle the estate properly, the other children tend to be very unforgiving, while children are rarely appreciative when their sibling does a good job. O'Sullivan warned that estates involving farms or closely held businesses are the worst places to have family involved as a fiduciary.
O'Sullivan does not believe attorneys are best suited for the role of fiduciary. He prefers to name a CPA, bank, or trust company. If parents want family input into the fiduciary, a fiduciary discharge provision can be included.
Gifts and loans to children are another problem area that O'Sullivan encounters. After a parent dies, children may claim that one child got a gift from the parent and so her share of the estate should be reduced. O'Sullivan advises clients to address this by putting a provision in the estate planning document making the parent's intent clear. For example, the document could state that the parent is not making any adjustments based on gifts.
Loans are a more difficult problem, according to O'Sullivan, and often "one child's gift is another one's loan." Loans can be addressed in a number of ways depending on the parent's intent. Verbal loans are difficult to prove, so O'Sullivan recommends including a provision that states that all verbal loans are a gift. If the parent has any outstanding verbal loans that she doesn't want to be a gift, then make sure the parent puts these in writing. If the parent wants the loan to be an advance against inheritance, this can be specified in the document. To avoid a child claiming the loan was forgiven, you can require that the forgiveness be in writing.
Often children will allege that their parent promised to pay them for providing services to the parent prior to death. O'Sullivan tries to avoid conflict over this issue by putting in a presumption that services provided in a nonfiduciary capacity were done "out of love and affection" and will not be paid for. If the parents do want to pay a child for services, the document can specify that the payment will come out of the child's share of the estate.
Handling Disparities in Shares
Another issue O'Sullivan frequently addresses with clients is an unintended disparity in shares to beneficiaries due to property held in joint tenancy or POD accounts. Parents often don't realize that property held in joint tenancy will pass outside the estate. O'Sullivan deals with this issue by including a provision stating that any property that passes outside the will or trust to any beneficiary will be treated as an advancement of that beneficiary's share. If the disparity is intentional, then the provision can clearly state that it is not an advancement. If the parent is favoring one child over another, O'Sullivan recommends explaining in detail in the document why this is being done.
O'Sullivan believes that if any matter should be kept out of court, it should be family matters, so he advocates for including arbitration and mediation provisions in testamentary documents. To make the provision enforceable on family members who weren't a party to the agreement, O'Sullivan includes a provision requiring the beneficiaries to agree to resolve disputes by mediation or have their share cut by 25 percent.
Because there is sometimes confusion, especially in Kansas, over whether a will or trust is contractual, O'Sullivan recommends specifying in the document whether it is or is not contractual. If it is contractual, he also recommends being specific about which terms are contractual.
O'Sullivan puts all of these explanatory provisions in article one of the testamentary document. After the normal declaration, O'Sullivan explains that the parent went outside the family for a fiduciary because family harmony is the parent's "number one goal." O'Sullivan notes that the contractual or noncontractual provision is usually the last.
Health care directives can also upset family harmony. O'Sullivan does not recommend going outside the family for these types of decisions because the decision making is too personal. Instead, he suggests including all the children and requiring a consensus, but allowing the other children to make a decision if one child is not available. If the parent does choose one child because that child is local or has medical experience, the document should contain an explanation of why the child was picked. If the parent wants to remain at home at all costs, O'Sullivan recommends including that in the document so that other children don't think the decision maker is wasting money. Other provisions could include whether the decision maker will be compensated and a waiver of liability.
Finally, contrary to conventional wisdom, O'Sullivan does not think it is a good idea for parents to discuss their estate plan with their children. If the children don't agree with the parent's decision, it will disrupt family harmony and put the children in the position of controlling the plan. The only exception, O'Sullivan says, is for farms or closely held businesses where you need a business succession plan.
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