(The information in this story is from a white paper written by Bill Hyde, Vice President and Client Advisor, FirstMerit Wealth Management Services)
When “Tom” died suddenly at age sixty-three, it was a complete shock to his family. For most of his adult life, Tom had worked tirelessly as a successful architect. Unbeknownst to his wife and three grown children, he had allowed his life insurance to lapse a few years earlier and had not updated his will in more than a decade. Tom was always private about his finances and rarely shared the details of his financial life with anyone in the family. Tom’s wife, who had no independent means of support, knew very little about the couple’s assets and faced the prospect of a significantly diminished lifestyle in her remaining years.
Good financial management requires a certain amount of work — work that sets a good example. For children and grandchildren, there is no substitute for having witnessed the care, thoughtfulness, attention to detail, and discipline that good planning demands. Too often, families have witnessed the final breath of a loved one setting into motion costly, avoidable financial consequences. The tragic result is a message that represents a contradiction to a responsible life of hard work.
While much has been written about the importance of business continuation planning, little attention has been devoted to similar planning to ensure the successful handling of family matters in the event of sudden, unplanned events such as aging, disability and death. While it is virtually impossible to prepare fully for the death of a loved one, Tom’s lack of planning compounded his family’s grief. Avoiding this scenario would not have consumed much of Tom’s time while he was alive. Had he addressed a few issues in mid-life, he could have transformed his life’s work from success to true significance, passing values, responsibility and work stewardship to those he cared about.
Where to begin
We are strong believers in the importance of well-coordinated planning during life and encourage our clients to address three fundamental pillars that stand together to create a stable foundation.
- A financial plan assesses your overall situation, provides a roadmap for implementing financial solutions, and projects growth to test the progress toward goals
- An investment policy statement details general and tactical strategies and establishes other parameters of consequence that are applied to investable assets
- Estate plan documents are the wills, powers of attorney, trust documents, and beneficiary designations of both spouses. Sometimes, these documents include a Letter of Instruction to a survivor regarding the location of important documents and contact information for key advisors.
The critical piece of the puzzle
The Letter of Instruction is often prepared at the end of the planning process, after the other estate plan documents are executed in their final form. It can be an invaluable tool for helping families pick up the pieces after a certain event, be it a planned or unplanned, by providing a starting point from which to proceed.
In this white paper, we will take a fresh look at how the Letter of Instruction can be of much greater utility to the planning process and thus to the family. Often, the focus of estate planning is on preserving family assets rather than the issues that will help preserve the family. Accordingly, our approach is to have the Letter of Instruction as the first, or one of the first, documents prepared, rather than the last.
We have expanded its concept and scope to make it a much more helpful resource for the family, including a component sometimes referred to as an “ethical will” (see sidebar). The Letter’s overriding purpose is to anticipate the vagaries in life that can affect the family and to set forth a plan to respond to them in ways that are consistent with the family’s values.
Developing the letter of instruction
Developing the Letter of Instruction involves the combined efforts of family members and the full suite of professional advisors to the family. Meetings of advisors are held with the family to ensure that all perspectives are brought to the table for consideration. The plan can include prosaic matters as well as the most significant, the purpose being to reduce stress on family members at times of challenge and change.
With this new process, it becomes the planning overview for the family. It encourages communication among family members and enables thoughtful review when there is time for careful deliberation and the weighing of alternative solutions.
Don’t forget the little things
Many families overlook making a plan for their personal effects – their jewelry, art work, collectibles and even family photographs. Parents commonly procrastinate to avoid potential conflict or simply assume their loved ones will be able to agree on how to divide it up after the parents are gone. Since there is an emotional value to family belongings that supersedes money, that can be a serious mistake.
The biggest family feuds, regardless of the size of the estate, are over personal property. Almost everyone has experienced or heard of situations where the emotional attachment to a personal effect is far greater than the object’s value. In one recent case, two sisters in Fort Lauderdale paid over $70,000 in legal fees in a battle over their mother’s jewelry which was valued at less than half that amount.
A well-thought-out Letter of Instruction can help families avoid the stress that often mars the division of personal property in an estate settlement. As a planning document, it provides a rational process for dividing items with emotional attachment and gives potential heirs the opportunity to share their wishes and interests in advance.
Once is not enough
The creation of the Letter of Instruction is not a one-time event, just as effective asset management is not. In asset management, a plan is initially built around the Investment Policy Statement and is subsequently reviewed at least annually to reflect changes in personal circumstances, the markets or the economy. A continuation plan for the family deserves at least that much care and attention.
The family meeting
We encourage our clients to schedule family legacy meetings at least annually. Some families limit the meetings to blood relatives, while others include spouses of children and grandchildren. Guest experts can be invited to speak on topics of interest. Also, key family advisors can be brought in to address issues such as changes in legislation that may impact the family and its planning.
Whatever the format, the purpose of the family meeting is to facilitate communication, educate, anticipate the future and ultimately provide a measure of confidence that the values, aspirations and the Family Continuation Plan are thorough, up-to-date, and will be followed for generations to come.
Conclusion
There is no greater gift to those you care about than leaving behind your values, traditions, beliefs and wishes. By taking the time now to develop a process and written document to convey your Family Continuation Plan, you have the opportunity to share a legacy that will influence the well-being of your loved ones and community in the manner you choose. You will be passing along the things that will be treasured by generations to come: your values and life lessons, your final wishes, your most prized personal possessions, and your financial assets.
The contents of this article are meant for information purposes only and should not be relied upon as legal advice. The facts and circumstances unique to each situation may affect the legal and financial analysis as applicable to that situation. The opinions and information contained in this message have been derived from sources believed to be accurate and reliable, but FirstMerit Bank N.A. makes no representation as to their timeliness or completeness. This message does not constitute individual investment, legal, or tax advice. All opinions are reflective of judgments made on the original date of publication.
Further reading
1. The ethical will
An ethical will can play a unique role in capturing the essence of a family. It is a document that can include family history; cultural and spiritual values; hopes and dreams for children and grandchildren; life-lessons and wisdom of life experience; requests for forgiveness for regretted actions; the rationale for philanthropic and personal financial decisions; and requests for ways to be remembered after death.
2. The surprise executor syndrome
“Rob and Carol Smith” had prepared a will many years ago which appointed their oldest child as executor of their estate, a common practice among many parents. During a recent planning meeting, the Smith’s eldest daughter, who travels extensively for her career, said she was surprised to learn of her role and revealed that she didn’t want the responsibility. Far too often, children learn of stipulations in their parents’ wills after the fact which can lead to stressful family situations. By discussing important legacy decisions in advance with the entire family, consensus can be reached concerning decisions that can affect a family for generations.
3. The family continuation plan
We encourage our clients to develop their Family Continuation Plan in writing and circulate it to family members and key advisors so that everyone is “on the same page”. The Plan should be regularly reviewed by family members and advisors and updated as needed. Common elements of the Plan include but are not limited to:
- Power holders on health care powers of attorney, including their contact information
- Location of health care powers of attorney documents as well as names and contact information of relevant physicians
- Summaries of estate plan documents, their location, computer passwords, and contact information for the estate fiduciary, the contingent fiduciary, the successor trustee and/or trust advisor
- Assignment of duties to family members and advisors under certain contingencies
- Ethical considerations that express the family’s values
The contents of this article are meant for information purposes only and should not be relied upon as legal advice. The facts and circumstances unique to each situation may affect the legal and financial analysis as applicable to that situation. The opinions and information contained in this message have been derived from sources believed to be accurate and reliable, but FirstMerit Bank N.A. makes no representation as to their timeliness or completeness. This message does not constitute individual investment, legal, or tax advice. All opinions are reflective of judgments made on the original date of publication.
