Three big estate-planning missteps, from a long-time accountant

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I retired on Jan. 1 from a large public accounting firm after almost 40 years as an accountant. Over those years I have had wide ranging experiences, starting first as an income tax specialist, then working with clients on their estate and wealth planning, and, in-between, a stop as a managing partner.

Surprisingly, I have observed many situations where high-net-worth individuals blissfully or blatantly ignored estate planning advice because they didn’t accept their mortality, viewed their children with rose-coloured glasses and were not forthcoming with all the assets they own.

In Part 1 of this two-part series, I will discuss some “soft” or “philosophical” estate missteps I have observed over my career. In Part 2, coming in a couple of weeks, I will deal with some practical or technical tax and estate planning issues and missteps.

Immortality – is for Greek gods and goddesses

It has been my experience that a contributing factor to estate mis-planning is that many of us are simply unwilling to accept that we are mortal. Highly successful people sometimes may even equate business success and mortality. Younger, successful people often don’t even consider they could pass away or be accidently killed at a younger age.

So how can an unwillingness to accept mortality play out to your detriment? Let’s consider two areas — wills and business succession.

I would like to think those who are successful enough to have a family office would have up-to-date wills and powers of attorney (POAs) for financial and personal care. But that was apparently not the case for such well known people as Prince, Kurt Cobain, Amy Winehouse, Martin Luther King Jr. and Pablo Picasso. These people, who in most cases likely had teams of professionals at their disposal, still supposedly died without wills and POAs, resulting in estate litigation (I have also seen this professionally on a couple occasions).

Interestingly, procrastination appears to be a side effect of considering our mortality. I know of a few instances where high-net-worth people passed away with revised wills drafted but not signed due to delays by one or both spouses. Procrastination can also impact POAs, especially given the complexity of the legal issues now surrounding extraordinary health measures and assisted death. Even if you have a POA for health care, it should be revisited if it was drafted more than, say, three or so years ago.

The bottom line is if you don’t have a will (in many provinces you will have a second will for probate purposes) or POAs, get them drafted by an estate lawyer immediately. If you are updating your will and POAs, don’t procrastinate – get them finalized. And finally, if you have not updated your will or POAs recently, undertake the review.

Parents cannot be expected to be clairvoyant about their children’s future inter-relationships, but some subtle due diligence may yield unexpected insight.

Immortality can also impact parents who run private companies (and, I guess in rare circumstances, even public companies). For some successful people, personal value is intertwined with their business success, and they delay implementing proper succession and transition planning even when they have a family office in place. This can affect the family company’s growth and alienate children from staying with the company. The family and their advisors have a very tough succession assignment when a parent wants to “die at their desk.”

John F. Kennedy said it best, in a 1963 address to American University: “In the final analysis, our most basic common link is that we all inhabit this small planet. We all breathe the same air. We all cherish our children’s future. And we are all mortal.”

Vertical and horizontal family issues

Over the years I have seen estates “blow up” over issues caused by a parent not accepting the reality of their relationship with a certain child and how that parent/child relationship ends up affecting all the children. However, most estate issues result when children have issues among themselves, which are often exacerbated by their parents wearing rose-coloured glasses and assuming harmony among their children that may not exist.

I call parent/child issues “vertical issues.” They can be historical in nature, such as a child’s lifestyle, a child’s lack of interest in the family enterprise or spouse/partner selection. They can also be caused by choice of executor, how you distribute your assets and who becomes the CEO of the family business.

What parents and sometimes their impartial advisors fail to recognize is that a current issue caused by the will or a historical issue between a child and parent can suddenly transform into a dispute between loving or cordial siblings. Vertical issues can also affect how parents are viewed by their children after their death.

For example (I am not using facts from my experiences for privacy reasons), say a mother felt her daughter was spoiled and had wandered aimlessly through her life, doing recreational drugs, taking no interest in the family enterprise and not finishing university.

Mom decided after discussing her will with her advisors to leave her daughter an equal share of her estate, but that this daughter’s distribution would be held in a trust controlled by her executors (the other children would be left assets outright). Daughter takes this slight by mom out on her siblings, saying they were always favoured and did not stand up for her. Strong and supportive sibling relationships are now put in jeopardy by mom’s decision. Daughter sues the estate, even though legally she does not have a good case and her relationship with her siblings is damaged.

While mother and her advisors may have had some concern about the use of the trust, they still decided it was the best way to go. This was likely the proper financial decision here, even though it affected the children’s relationship.

I call issues among siblings “horizontal issues.” Among them are sibling rivalries, past jealousies and perceived parental favouritism. Parents may or may not be aware of these sibling issues, but if they look at their children with a harsh reality, they may have some pause for concern when planning their estate. While parents cannot be expected to be clairvoyant about their children’s future inter-relationships, some subtle due diligence – talking with their children separately, for example, or seeking observations from their advisors or other people who know their children well – may yield some unexpected insight.

Horizontal issues can play out for several reasons. One is perceived favouritism of one child while the parents were alive. Another could be unequal distributions in a parent’s will. The unequal distribution could be because they are “rewarding” the caregiver child, or because they helped one child more while they were alive, or because one child is the “black sheep” of the family. In family businesses, a dividing issue can be which child is appointed CEO of the family enterprise.

Children may also quarrel over valuables and sentimental items that are not specifically allocated in the will. Parents often make a mistake in promising a certain item to a child and then not following through in the will.

Based on my observations, parents would be well served to ensure they take off their rose-coloured glasses when considering their family’s vertical and horizontal issues while undertaking estate planning.

Don’t play hide and seek with your assets

One final point. Some people keep certain assets hidden or private, for assorted reasons.

I was told of a situation (not my client) where a high-net-worth person ended up stuck in a dangerous situation in a foreign country, and they supposedly were frantically calling home to let the family know where they kept certain assets.

If you have assets in a private safety deposit box, under your mattress or in a Swiss bank account, make sure someone knows or will eventually know about these assets.

Mark Goodfield is the writer behind The Blunt Bean Counter blog and the book Let’s Get Blunt About Your Financial Affairs. He can be reached at bluntbeancounter@gmail.com. He has written, been quoted and interviewed on financial and taxation issues by The Globe and Mail, BNN and the Toronto Star, among other financial publications. Mark is currently looking for a new challenge outside the public accounting world.

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