My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, June 5, 2017

The Taboo Of Money- I Will Not Talk About It- Part 2

As discussed in my blog post last week, I am going to post small excerpts of a book I was writing on money taboos which I have abandoned. Last week I suggested you consider a frank discussion with your beneficiaries about your will. Today I discuss four of the eight benefits I see in having a family meeting to discuss your will; I discuss the final four benefits in next weeks blog post.

The Benefits of Having a Family Meeting


The following is a brief summary of what I believe to be the main benefits of having a family meeting about your will:

1. Avoiding Future Conflict - and Litigation!

Fans of Charles Dickens' Bleak House will of course remember the fictional case of Jarndyce and Jarndyce in which generations of family members fought over a large estate until the estate was completely consumed by legal fees. If you don't discuss your will with your children, any perceived actual or perceived inequalities in your will cannot be explained rationally to them, and conflict and estate litigation might well result. Of course, the kids might "lawyer up" despite your best efforts, but at least you have done your best to avoid it!

One of the key reasons for even considering a family meeting to discuss your will is the opportunity it provides for you to outline in a rational manner and hopefully in a calm setting why you have left certain assets to certain children, to charity or to whomever else you have decided to leave assets. It is a bit of a guessing game whether you will have properly perceived what your children perceive as inequalities; but in most cases, it will be obvious.

2. Explaining Intentional Inequities

An example of an obvious and deliberate inequity is where you have left more money to one child than to the others. Where you have left more money to one child (perhaps he or she makes less money than the other children), you can use the meeting to explain why and explain that it has nothing to do with loving that child more, you are just helping him since they have not been as fortunate as the other siblings.

The fallout on this decision may come from two sources. Most of us are familiar with the biblical parable of the prodigal son, in which the first son asks for his inheritance from his father early, blows through all the cash and then goes back to his dad for more. Rather than telling his son to suck it up and support himself, the dad then dishes out even more to the prodigal son, leaving his hardworking younger son angry. Remember that there may be reasons why the children are not equally successful - perhaps the least successful one is also the laziest and most unmotivated of the children. The others may question why they are being penalized in your will for their sibling's lack of performance. It is your right to give your money to whomever you wish, of course, but you should expect at least some resentment from the other siblings should you wish to proceed with this course. Be prepared to justify your decision.

Secondly, and more surprisingly, fallout may not come from the children who are not receiving equal inheritances, but from the child receiving the additional money. They may feel insulted that you feel they have been less successful, and embarrassed by your desire to give them extra help, rather than regarding the extra allocation as compassionate recognition that they require some additional financial assistance.

3. Avoiding Unintentional Inequities

There may be less obvious inequities. There may be consequences arising from your legacies that you did not anticipate, creating unintended conflicts between your family members. For example, in striving to be fair, you may bequeath a cottage or other secondary property to all your children equally, without realizing that doing so actually creates a burden on those of them who do not want the cottage but will be required to pay for its upkeep. You may also miss the opportunity to consider other ways of disposing of your assets, perhaps by intervivos gifts that will ultimately minimize taxes.

4. Clarification of Prior Gifts and Loans

Many of my clients have wanted to help out their kids during their lifetimes by providing them with a little (or a lot) of extra cash. The money might be used for a down-payment on a property, for education or to bail out a child who hits a bad financial spot. The most important thing is that the child must know whether the money was a gift or a loan and whether that money was expected to be an "advance" on the inheritance. How to intend to characterize these gifts or loans is an important issue to discuss in the family meeting, especially where you want to avoid an unintentional inequity if you were to die without making your intentions down and where one child has already received a significant portion of your estate.

The above issue can often be dealt with by utilizing a “hotchpot clause” in your will. Over the years, a legal concept now commonly known as a “hotchpot clause” has evolved to deal with the equalization of the beneficiaries of an estate, where one or more of the beneficiaries have already received money during their parent’s lifetime. When a hotchpot clause is inserted in a will, the clause will prevent a beneficiary (typically a son or daughter) from “double dipping” where the parent intended any money advanced during their lifetime to be considered a pre-payment of an inheritance, rather than an advance over and above an intended inheritance. See this post I had on the hotchpot topic for more information.

Next week I conclude this series with the final four reasons to consider a family meeting.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

2 comments:

  1. Hi BBC

    I get the reasons why, not sure I understand the how to hold the meeting.

    ReplyDelete
    Replies
    1. Hi Anon

      I discussed that in the chapter of my intended book, I may post that part next year.

      Delete