Legacy Planning: The Importance of Communication

Having a well-established plan for your estate and communicating your wishes clearly with your children and grandchildren can help keep your legacy plan as conflict free as possible. The following key areas tend to cause the largest conflict among family members. Make a plan and communicate your wishes with your family about how each of these areas will be handled in your legacy plan.

Be Clear on How Much You Will Give to Charity

Leaving money to charities that you are passionate about can have a lasting impact on the organization or organizations you choose to support. For philanthropists, knowing that your estate will serve a noble cause brings peace of mind and a sense of purpose.

In some cases, children and grandchildren see eye to eye with their parents about the choice to leave a substantial part of their estate to nonprofit organizations and foundations. However, there are instances when this can be a major point of contention among parents and kids or other family members. (For related reading, see: Estate Planning Basics.)

Some parents may see the money that they will leave in their estate as having the potential to spoil children or grandchildren and they want to teach the lesson of “building their own castle.” Alternatively, their children may see this money as something that they need or see the opportunity for it to help them succeed in business, other ventures, or in saving for their children’s schooling.

Talking with your heirs about your concerns as well as your philanthropic intentions may help you come to a decision that will help your family as well as charities and, at the very least, have time to psychologically and emotionally come to terms with the decision you have made regarding your wealth.

Decide What Will Happen to the Family Home

The family home, if you keep it until you pass, can be an emotional topic for family members. Each surviving heir will have their own memories and connection to his or her childhood home and the items within it. It is important to make a list of collectibles, antiques and other objects of value (emotional or monetary) and provide detailed instructions as to how they will be dispersed to your heirs.

Your intentions for the home itself should also be clearly stated in your will. In some cases, one child may have lived there longer than other children or have returned after college in a boomerang fashion. This can sometimes create a false sense of ownership that needs to be mitigated and clarified in order to reduce discord or conflict after you pass.

In other cases, children live at home to care for an aging or ailing parent (though there may also be financial reasons). They may not be in the financial position to buy the rest of their siblings out of the home. With some discussion and perhaps the assistance of a mediator or financial advisor, children may be able to come to an agreement that their sibling can continue to live in the home after their parents pass. If one child wants to stay in the house, then they need to buy their siblings out or another viable option needs to be identified in your estate documents. Again, communication in this type of scenario is paramount. (For more, see: 3 Secrets You Didn’t Know About Estate Planning.)

If this is something that can be predetermined and discussed in advance of your passing that would be better for everyone. Grief and loss can evoke heightened emotions and with that can come lack of rationality in the face of conflict or disagreement.

Include Personal Family Items in Your Legacy Plan

Personal items like wedding china or silver, antiques and collectibles, musical instruments, etc. can be a major point of contention for family members because of the memories they evoke and the connection that multiple family members may have to many of these items. There is also the monetary value that many of these items may have and an even dispersion of these things based on your wishes is an important thing to discuss and map out in your legacy plan.

Selling Assets and Dividing Proceeds is an Option

While typically not a common approach (due to the emotional value many items have to heirs), selling all of the personal property and dividing the proceeds as directed in the estate plan could be the simplest way to avoid feelings of unfairness. On the downside, many items may have a low resale value and the opportunity to preserve the sentimental value of the items is lost.

Different Approaches to Dividing Assets

Most families opt to discuss the items and try to come to a consensus of what items will be distributed to whom. In this situation, usually things get sorted out, but there can be times when one family member is particularly pushy, or one family member may want to avoid conflict altogether which can cause discourse and bad feelings.

To avoid this, some families decide to use something called the “draft pick” approach where people draw straws to determine who will “pick” an item first and then the selection continues in “rounds” until all of the items that people want have been divided and the remaining items are typically sold. One of the negatives to this approach can be that those who are first in the draft order will benefit from being able to pick the most valuable items and then leave the outcome lopsided.

Appraisal Selection Auction

While appraisal selection auctions are a bit complicated, they can be the fairest. First, household items are appraised and the results are distributed to the heirs of the estate. Beneficiaries would then flag items that he or she wants. If only one person wanted a particular item, then it would be distributed to him or her and the value of the item or items would be deducted from that heir’s distributable financial assets from the estate.

If more than one person flags an item, then each heir submits a sealed “best” bid for the item to the executor. This highest bidder receives the item and the amount is deducted from the beneficiary’s share of the estate.

If two or more beneficiaries want a particular item, the beneficiaries submit one sealed “best” bid for that item to the executor or trustee. The highest bid wins, and the bid amount is subtracted from the beneficiary’s share of the estate or trust’s financial assets.

While on its face this approach seems the most fair and transparent, the bidding outcome may be predetermined if one heir is wealthier than another. (For more, see: 5 Ways to Mess Up Estate Planning.)

Choose What to do With the Vacation Home

Just as with any family home, a vacation home holds fond memories and deep emotions that can sometimes be the cause of disagreement or conflict. Situations where one or more siblings want to keep the vacation home as part of the family or the parents wished for the home to be in the family for multiple generations and the other sibling(s) or heir(s) wants to liquidate the asset are common. These are clearly two very different perspectives and an upfront conversation needs to take place to resolve the matter.

Typically, it is recommended that a trust account be established so that the heirs do not incur the costs of expenses and maintenance (this is especially recommended if the parent wishes for the home to stay in the family). This can mitigate feelings of burden for those who may not have wanted to keep the home and also allow resources for the child who does not have the extra money to afford the ongoing vacation home cost.

Beyond the manner in which you structure the bequeath of your vacation home, it may also minimize disagreement if you prepare a written agreement for your heirs. This agreement can be completed and signed as part of the gifting process and can include governing rules and operations expectations. Details of this type of an agreement might include:

  • Terms of use: Who gets to be there and when.
  • Payment Agreement: Who pays for what and how often.
  • Improvements and Décor: Who manages home improvements and decides on how the home will be decorated and furnished.
  • Liabilities: The type of insurance coverage that should be maintained.
  • Terms of Sale: Determines whether or not an interest can be sold and on what terms.

Conversation Can Save Conflict

Regardless of who you would like to leave your estate to and what your wishes are as to how that legacy lives on, it is paramount that you communicate your wishes in carefully outlined estate documents and that your money is invested in a manner that will maximize the contributions you can make to the charities of your choice and the people you love. Discussing these decisions and documents with your family in a positive, proactive manner can help eliminate potential conflict over the legacy you are leaving behind. (For more, see: Live a Rich Retirement or Leave a Legacy?)