Good estate planning can ease the transfer of wealth between generations. But without intergenerational communication, it may all be for nothing. Even with it, it may be a close call. Just ask Tom Jambrosic, whose father died last year.
Jambrosic's father was a builder, not a planner. He talked about planning for the end of his life, but he didn't do a great job of it. Like most people, he didn't like thinking about his own mortality. He had survived World War II, after all. The younger Jambrosic, 60, had to drag his father into a meeting with a lawyer to set up a trust, and even then things didn't go very smoothly. Jambrosic had to push his father to update his beneficiaries. Battles erupted over the division of four buildings he owned. He forgot to give him important documents.
But when his father died, Jambrosic still found there was more work to be done. Shares of AT&T (ATT) came to light that no one had known about. Jambrosic's father failed to mention that he changed the location of his cremation, for which he'd paid in advance. "My father just didn't follow through," Jambrosic said.
Battles Over Personal Possessions
Still, Jambrosic had it comparatively easy. Jambrosic's father was his best friend, and he was involved in his father's life right up to the very end. For many—including some of Jambrosic's friends—it doesn't go nearly as smoothly. And oversights have a way of turning into big problems. "Any detail that is not dealt with is a potential conflict," Morgan Stanley (MS) adviser Ami Forte says.
Conflicts emerge over everything, from division of property to the details of the funeral, dispossession of pets, and charitable giving. If fissures in the family exist, they will widen.
One of the most common battles occurs over personal possessions. Jambrosic and his siblings got along well, so when it came time to divide up his father's personal possessions, everything went very smoothly. Part of that was due to the nature of the possessions; Jambrosic's father had a large tool collection, too large to be moved from the home they shared in Kansas City, Kan., to his siblings' homes. He kept the tools.
But such tension-free divisions are not always the case. Not all families get along, and it may be best to state ahead of time who gets what, according to Morgan Stanley's Forte.
Tips for Estate Planning
To avoid the financial and personal headaches that can arise after the death of a family member, Forte recommends making a list of what you have and where you have it. Gather together all the documentation, including account statements, insurance policies, and even the will, and let someone know where it is.
So what things get overlooked when doing estate planning? Start with the three Ws, Forte said: what you have, where you want it to go, and who you want to oversee the process.
Forte recommends making a list of all your assets, from your bank accounts and insurance papers to property and other tangibles. As odd as it may seem, sometimes children don't know what's in the family. Whether it's a valuable coin collection or grandma's silver, write it down. This may be the easy part.
Then comes the where. This can get sticky. When it comes to accounts, it's important to remember to update the beneficiaries. If the beneficiaries are out of date, your IRA could end up going to an ex-spouse or someone other than the person(s) you intended to receive it. If a family gets along, there may be no need to say who gets every little piece of property. But if there's tension, it's best to get it down in writing.
Choose a Reliable Executor
For the most part, the will trumps everything. If you indicate in your will who gets what, it should end up in their hands. But this is not always the case. The beneficiary on an IRA always takes precedence. "The IRA rules, no matter what the will says," said financial adviser Dean Barber, of the Barber Financial Group in Lenexa, Kan.
Of course, a reliable executor can ease the transition and eliminate problems. It's the executor's job—and it's not an easy one—to carry out the will. Forget about a prodigal son or a drinking buddy. In a close family, it will probably be obvious whom the executor should be. Jambrosic lived in the same city as his father, so it made perfect sense for him to take on the task. But if family divisiveness is the rule, look to someone outside the family tree, Forte said. Remember, though, the key word here is "reliable." And you might want to add trustworthy, responsible, and organized.
Jambrosic is making sure that his two children won't have to go through the same problems when he dies. He has updated his beneficiaries. He has taken his children into his office and shown them where the important documents are. He has also made a list with the details about his broker, his lawyer, and his doctor. And he's arranged for his own funeral. When the time comes, he hopes to make it easy for his everyone. "The best thing to do," he says, "is take care of it ahead of time."
See this slide show to find out a dozen ways smart financial planning can lessen death's sting.