If it hasn't happened to you personally, you probably know someone who has gone through it. A family ripped apart over an inheritance. As with most horrible things, we like to think it won't happen to us. We like to assume our family is somehow different or immune. We dream that it only happens to those ultra high net worth people who leave tens of millions or more to be divided among their heirs. Most of the time, we're wrong.
My mother was a single parent, even during the years my father was home. A lifelong Naval Aviator, my dad spent a lot of time away from the family. Their divorce seemed almost inevitable to me, but the real shock came when just a few short years later, my mom passed suddenly from a rare blood disorder known as Factor 5. I remember getting the phone call from my brother to say that she was in the hospital. I asked if she was ok and all I remember of his response was, "Come now."
I was in the car and driving home in under a minute. I didn't take a thing with me, but broke every traffic law there is to make it home in record time. When I arrived in the late afternoon, mom was unconscious. There was no way for us to know that she would never wake. The next day was one of the worst I've ever had. We came together as a family and prayed, but we didn't get the answer we wanted. We were soon told that her surgery had failed and she hadn't come through it. The Factor 5 had disguised itself as a stroke and it wasn't until after she was gone that we learned of the real cause. She was gone just a little more than a month after her 59th birthday.
My youngest brother had been living with my mom and had intimate knowledge of her finances. When she told us she was going to make him her trustee we never thought twice about it. Not only did it make sense, but it was one less thing for us to worry about. She even gave him a slightly higher percentage to compensate him for the work he would need to do. We weren't concerned about the money. My mom was a career nurse and though she had put together a modest sum, she was far from rich.
As a nurse, estate planning wasn't her expertise. Like everyone in their 50's she had heard the buzz words. "Trust, Will, 401k" and she had made enough of an attempt that she felt comfortable that she had covered her bases. It could've been worse that's for sure, but she couldn't have imagined what would happen after she was gone.
It didn't take long for what we now realize was the inevitable to happen. The trustee got himself into some financial trouble with three mortgages. Two bad investment properties that were underwater. Caught just as the real estate market was tanking. By definition a trustee who is also a beneficiary has a conflict of interest. Trustees have a fiduciary duty to the beneficiaries of the estate to do what's in the best interest of those heirs and not their own. So what happens when the trustee wants to sell community assets to bail out of bad circumstances? Lots of heated moments, followed by assumptions, name calling and eventually... lawyers. In our case, not just lawyers but a mediator to boot.
$50,000 later, we caved just to put it all behind us. If you had asked him at the time, the trustee would've said he didn't get what he deserved. If you asked us, we would've said the same. Nobody wins. There are just different levels of losing. Once a tight knit family having shared both good and trying times over the years, we split up. Our brother and now former trustee went his separate way and even though bridges have been attempted, they've never been rebuilt. That was nearly ten years ago and there's no end to it in sight. He said time would heal his wounds, but all time did was make it easier to forget.
I started my career in this business as we were going through this trial. It's easy to look back and see where we made mistakes, but it's already too late to change them. My hope is that you take this story and learn from it. Keep in mind that more than anything, Estate Planning is about protecting your legacy which in most cases is more about relationships than it is assets.
Basic Principles of Wealth Transfer
- Money makes people crazy.
- Beneficiaries who are trustees have an inherent conflict of interest.
- Hiring a third party administrator or impartial third party can help protect your family.
- Make sure the right assets get to the right people at the right time.
- Estate Planning is as much about protecting your relationships as your assets.
- You get what you pay for. Using generic internet templates and legal zoom might seem simple, but these are easy ways to ensure problems down the road. Paying a premium for a well defined Trust, Will, and Health Directives can save ten times what you paid in potential legal fees and hordes of emotional currency.
- Use experts. You don't know what you don't know until you know and by then, it's too late.
- As confident as you can be in your own family, there will be external pressures you can't possibly know about. Future spouses, financial trouble, lost employment all create situations which can adversely affect the vision you had for your estate.