Creating Responsible Caretakers

Recently, a client shared a story with me that I will never forget. While skiing out west, he rode a chairlift with a young woman in her mid-twenties. As they chatted, he asked her what she did for a living. She replied, “Travel and ski.” When he inquired (in a not so subtle way) how she could afford to travel the world, she replied, “My great-grandfather’s trust.” Curious to know more about this tycoon great grandfather who built wealth spanning generations, he asked, “What did your great-grandfather do for a living?”  Her reply? “I have no idea.”

Over the course of just a few generations, how could there be such a disconnect between the sacrifice it took to create wealth, and respect for being the recipient of wealth created by that sacrifice? Does the lack of respect or an obligation to carry it forward mean the demise of family wealth? Each generation strives to create a better life for the next. We work tirelessly to build a solid foundation for our children. To provide them with the resources and opportunities we never had, while sparing them the pain we endured. But can there really be appreciation for something without the sacrifice? Can someone really be grateful for something they have not earned? The answer is yes, but the responsibility may just be on the wealth creator, not necessarily the wealth recipient.

Share the Story

In order to appreciate something, you need to have respect for where it came from. A family’s wealth can be a centennial farm, a first generation business or “old money” passed through generations. Each was built with a story. Not just a story of success, but one of heartache, loss and failure along the way. Share the stories with the next generation – both good and bad. There is always something to be learned from success, but there is even more to be learned from failure.

To Disclose or Not to Disclose

If a child knows they will inherit wealth, are they less motivated to make something of themselves? The fear of creating entitled, non-productive members of society leads the vast majority of families to keep their wealth a secret. The problem?  Wealth cannot be managed responsibly by someone who doesn’t know it exists. Change how wealth is viewed within your family. Discuss wealth as a privilege, not something that is expected, but something that is earned. If earned, wealth becomes a resource that creates opportunity.

Introduce the Concept

Education and preparation precede every successful transition of a family’s wealth, property or business. Engage the next generation in the transition plan. Involve them in the day-to-day management of that wealth and slowly increase their responsibilities over time. Introduce the skills they will need, but don’t hold their hand. Give them the tools, but let them struggle with how to use them. Be a sounding board for advice, not a dictator of the process. The first time your family learns to manage wealth should not come when you are no longer there to guide them.

Foster Relationships

Generational wealth is built and maintained with the help of key advisors. The relationship between an individual and their accountant, financial advisor and attorney can span decades. Inherent in these relationships is institutional knowledge about business decisions, historical planning and family dynamics. Unfortunately, wealth often dissipates between generations when relationships between these advisors and the next generation are not well-established. Make the introduction between your family and key advisors early and allow those relationships to evolve naturally. It will take time to build trust and develop mutual respect between them.

Create Caretakers

Children should feel they are part of something bigger. Gratitude for what they received, but also a sense of stewardship of that wealth for the next generation. Communicate your expectations, but listen, too. Develop a family mission statement together. Incorporate intergenerational ideas, values and beliefs, allowing each family member to play a role in the family story. Ultimately, you will have to have faith that you successfully prepared the next generation to continue that story. After all, they will be the caretakers of the legacy you created.

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Cortney Danbrook advises business clients on liquor licensing and regulatory compliance and provides specialized counsel to individuals, families and businesses in the areas of estate planning and administration. She can be reached at (231) 714-0163 or cdanbrook@darlawyers.com.

This article was featured in the October 2018 issue of the Traverse City Business News.

Administering Your Family’s Estate: A Blessing Or A Curse?

You struggle to keep your composure as you arrive at the attorney’s office. You remember being seated in a dark conference room, lined with books – lots of books.

You remember the attorney’s strong handshake and his empathetic gaze. You remember sipping on a cup of mediocre coffee.

You remember being sent on your way with a list of tasks. A list of tasks which you can no longer decipher. “Contact beneficiaries – 63 days.” “Publish Notice to Creditors.” “Possible probate.” “Apply for Tax ID.”

It is during this moment that you feel both burdened and privileged. Privileged to carry out your mother’s wishes and burdened by the weight of being thrust into completely unfamiliar territory full of legal and financial minefields.

The fiduciary duty of administering your mother’s estate lies in your hands. The never ending stream of questions from family members has begun and you have no idea where to start, let alone what your job really entails.

Death should be simple, but it’s not. It’s messy, complicated and emotional. Families and finances are complex and deeply personal. Upon death, the intersection of greed and grief can breed distrust and quickly destroy family relationships. When family members and friends are appointed to administer estates, the decedent is comforted by the notion the family member will “know” what their wishes are, and will do what’s “right.” While the decedent takes comfort knowing their affairs will be taken care of, the personal representative or successor trustee they appoint is rarely (if ever) educated or adequately prepared for what is expected of them after death.

Like religion and politics, death is usually a topic we steer clear of at family gatherings. Everyone has an opinion about it, we whisper about it, but no one wants to openly discuss it – perhaps out of fear it will eventually happen. So, if bringing up a family member’s eventual demise at Thanksgiving dinner is not a viable option, how do you prepare yourself if you are asked to serve as a personal representative or successor trustee?

Start the conversation before death. If a family member or friend appoints you to serve as a personal representative or successor trustee, ask questions while that person is still living. Are they willing to share a copy of the documents with you? Where are the original documents located? Can they introduce you to their attorney, accountant and financial advisor? Help them understand that in order for you to carry out their wishes you need to be part of the conversation now.

Understand your right to decline. While it may be an honor to be appointed to serve, you are not required to do so. You always retain the right to decline the appointment, and the ability to later resign, even if you accept.

Give yourself time to breathe. Stop and breathe. When a family member or friend passes, you have just lost someone you care deeply about. Yes, there will be timelines and deadlines, but most things can wait. Your emotions are running wild and rushed decisions, especially emotional ones, are never good.

Surround yourself with professionals. You have the authority to hire professionals (estate attorneys, accountants and financial advisors) on behalf of the estate to assist you with the estate administration. This does not have to be the decedent’s attorney or tax preparer. They are professionals of your choice who represent you. Take advantage of this. You will thank yourself later.

Cut yourself some slack. You have never been through this process before. No one expects you to know exactly what to do. Every decision has legal and financial implications. Choose an attorney and accountant that you are comfortable with to guide, advise and reassure you throughout the process.

Read the documents. Wills and trusts tell you what to do. Simple, I know. They grant you certain powers, control your actions, direct distribution and provide critical instructions for income, estate and gift taxes. These documents are packed full of legal jargon and can be lengthy for good reason. If you don’t understand the language – ask.

Abide by the terms of the documents. The provisions of the documents express the decedent’s intent. These are not merely “guidelines.” You are bound by a fiduciary duty to abide by the terms of the document. If there is a question as to interpretation, do not infer – ask.

Understand your fiduciary role. You serve in a fiduciary capacity, entrusted with the management and care of estate assets. Review your fiduciary duties. Know what it is expected of you and when; understanding that breaching one of your fiduciary duties can expose you to personal liability.

Recognize your right to be compensated. Serving as a personal representative or successor trustee takes time away from your job and your family. Exercise your right to be compensated for this time and seek reimbursement for any out of pocket expenses you incur. Keep detailed records; you will be surprised at the amount of time and expenses.

Protect yourself. You can be subject to civil and criminal liability for your actions. Document your actions and seek the advice of legal and financial counsel before taking any action you are uncertain about.

Be transparent. Little to no communication with the estate beneficiaries raises suspicion. Be transparent about your actions. You have a duty to keep the beneficiaries reasonably informed and doing so will help keep peace within the family.

Seek court approval. If the terms of the documents are unclear or there is a potential for conflict, seek instruction from the probate court.

We rely on family and friends to carry us through life, so it is not surprising we also rely on them upon death. Serving as a personal representative or successor trustee is an honor. You have been entrusted to carry out of the legacy, memory and final wishes of a loved one. Take your role seriously, ask for help and recognize that you were chosen to serve in that role for a reason.

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Cortney Danbrook provides specialized counsel to individuals, families in the areas of estate planning and administration. She can be reached at (231) 714-0163 or cdanbrook@darlawyers.com.

This article was featured in the April 2018 issue of the Traverse City Business News.