Family matters of money and wealth planning
In the years to come, billions of dollars will be passed down from generation to generation. Many families will potentially be divided due to money-related issues, such as choosing someone to make financial or health care decisions, issues when physical and mental capacity declines, and legal issues arising between. family members.
When I started in the financial planning industry 25 years ago, we were preparing for the retirement of the baby boomers. One of the biggest concerns and challenges today is the aging of the population and how assets will be managed and transferred as people live longer. The following example illustrates the problems that can occur.
Bob, a resident of Southern California, is 93 years old and has been widowed for about 20 years. He lives alone and runs his own business until a few years ago. Bob has four children from his first marriage and his deceased second wife has four children from his previous marriage. His estate is worth $ 3,000,000, half of which is in real estate and the other half in his investment portfolio.
Bob’s original family trust was written over twenty-five years ago. He had made a few updates over the past few years, but Bob’s son (who lives out of state) contacted me to tell me he was concerned about his abilities and that he was exploited – especially by his young friend. Having worked with Bob for several years, this was not the first time I had heard of Bob’s younger friends – some who were half his age. I have also seen his generosity in giving his children gifts and “loans” of large sums.
The decision was made to have a family reunion at my office with Bob, his children and their spouses who all came from out of state. With the help of Bob’s attorney who joined the meeting by phone, Bob’s eldest daughter, Lynn, was appointed co-trustee and given a power of attorney to help her make financial decisions.
A few months later, Lynn calls me to express lingering suspicions about Bob’s new, younger friend trying to borrow $ 100,000 from her. We are temporarily suspending all distributions from Bob’s investment accounts, and Lynn suggests removing Bob from all financial decisions. Bob resists, but Lynn is concerned about his mental capacity, so she gets letters from two doctors indicating that he is losing his mental capacity to make decisions. His trust document says he can be revoked as a co-trustee if his mental capacity is impaired.
Bob’s attorney believes these letters are not sufficient to remove Bob as co-trustee. The family seek advice from another lawyer who recommends that Bob’s son be added as a co-trustee to play that role along with his daughter Lynn. Now, with three co-trustees, two of the three signatures are required for transactions. Soon after, Bob experiences a sudden change in health and is no longer able to live independently. The family moves him to live near his daughter Lynn who also oversees his care. Bob’s son and daughter continue to be co-trustees and appear to be managing his financial affairs well.
This example provides a number of considerations when establishing or modifying your estate plan:
- Discuss in depth with your children and all concerned about what is in your plan before signing your documents.
- Regularly review your estate plan and update it as needed when dramatic changes occur in your life, such as divorce, death of spouse, etc.
- Determine if someone outside of your family is a better choice for handling your financial and business affairs if you become incapacitated or die. This could be a close family friend, a paid professional trustee, or a trust company.
- Your professional advisers – that is, a lawyer, tax specialist or financial advisor are good resources to start these discussions.
Mark Tsujimoto is a Financial Planner at Cetera Advisor Networks LLC and a member of the Professional Advisory Board of Torrance Memorial. [email protected] (310) 373-7351