The Best of The Blunt Bean Counter - Is Your Estate Planning Horizontally Challenged?

This summer I am re-posting the "best of" The Blunt Bean Counter blog while I work on my golf game. Today, I am posting a February, 2017 blog on whether your estate planning is horizontally challenged. Essentially this means; have you considered your children's relationships and rivalries in your will, so that your will can be easily administered without creating dissension or in-fighting amongst your children.

Is Your Estate Planning Horizontally Challenged?

In November 2011, I wrote a blog titled “How your Family Dynamic can affect your Estate Planning”. In that post, I proposed that you must consider vertical and horizontal issues in respect of your estate planning.

Vertical issues are decisions made by parents that will affect their children and potentially the way in which their children view them after death. These decisions would include choices made in your will such as who is the executor and how you distribute your assets and issues outside your will, such as which child you will pass the reins to run the family business.

Horizontal issues relate to the interrelationship of your children, such as sibling rivalries and past jealousies and perceived parental favouritism. These issues may be exacerbated by vertical decisions made by parents and thus I suggested any parent who does not consider these horizontal relationships runs the risk of creating a divisive wedge amongst their children.

Since I wrote this post, I have seen these horizontal issues play out a couple of times where parents estate planning included unequal distributions in their wills. I won’t provide specifics, but you generally see unequal distributions for three main reasons:

1. One child essentially becomes the caregiver of a parent (or parents) while the other children are "no shows" and the parent in essence “rewards” that child.

2. One child’s financial position is weaker than the other children, so the parent assists them with a greater inheritance and/or help while alive.

3. One child was always the black sheep.

Everyone is entitled to deal with their estate as they wish and there is no law that says you have to leave your estate equally to all your children or even leave any of it to them, as opposed to say charity.

However, if you are like most people and you wish to keep your wealth and assets within the family, you need to understand that you can’t always have your cake and eat it too. By this I mean where your children have a good relationship, you cannot expect that you will not put a strain on this relationship if you provide unequal distributions. In most cases, human nature causes jealousy or envy of some kind and can ruin a good sibling relationship.

In cases where your children do not have a good relationship, some parents, as they are in failing health, request that the children try and improve their relationship; yet the parent adds to the strained relationship by favouring one child over the other in their will (not that equalizing is any guarantee you will change your children's relationship).

For most people, this is not an issue. But, if you have unequal distributions in your will or estate planning, you may have to decide what your greatest priority is: providing one child with more assets or keeping harmony among your children. Accomplishing both may not be possible. Regardless, there is no assurance that if you bite the bullet and equalize your estate, that some obscure or trivial issue will not cause friction amongst your children.

There is no right or wrong answer here and you may say, children be dammed, I am distributing my assets as I see fit. I am just pointing out that you must be realistic and if your prime objective is keeping peace among your children, consider both vertical and horizontal issues.

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.

Is Your Estate Planning Horizontally Challenged?

In November 2011, I wrote a blog titled “How your Family Dynamic can affect your Estate Planning”. In that post, I proposed that you must consider vertical and horizontal issues in respect of your estate planning.

Vertical issues are decisions made by parents that will affect their children and potentially the way in which their children view them after death. These decisions would include choices made in your will such as who is the executor and how you distribute your assets and issues outside your will, such as which child you will pass the reins to run the family business.

Horizontal issues relate to the interrelationship of your children, such as sibling rivalries and past jealousies and perceived parental favouritism. These issues may be exacerbated by vertical decisions made by parents and thus I suggested any parent who does not consider these horizontal relationships runs the risk of creating a divisive wedge amongst their children.

Since I wrote this post, I have seen these horizontal issues play out a couple of times where parents estate planning included unequal distributions in their wills. I won’t provide specifics, but you generally see unequal distributions for three main reasons:

1. One child essentially becomes the caregiver while the other children are "no shows" and the parent in essence “rewards” that child.

2. One child’s financial position is weaker than the other children, so the parent assists them with a greater inheritance and/or help while alive.

3. One child was always the black sheep.

Everyone is entitled to deal with their estate as they wish and there is no law that says you have to leave your estate equally to all your children or even leave any of it to them, as opposed to say charity.

However, if you are like most people and you wish to keep your wealth and assets within the family, you need to understand that you can’t always have your cake and eat it too. By this I mean where your children have a good relationship, you cannot expect that you will not put a strain on this relationship if you provide unequal distributions. In most cases, human nature causes jealousy or envy of some kind and can ruin a good sibling relationship.

In cases where your children do not have a good relationship, some parents, as they are in failing health, request that the children try and improve their relationship; yet the parent adds to the strained relationship by favouring one child over the other in their will (not that equalizing is any guarantee you will change your children's relationship).

For most people, this is not an issue. But, if you have unequal distributions in your will or estate planning, you may have to decide what your greatest priority is: providing one child with more assets or keeping harmony among your children. Accomplishing both may not be possible. Regardless, there is no assurance that if you bite the bullet and equalize your estate, that some obscure or trivial issue will not cause friction amongst your children.

There is no right or wrong answer here and you may say, children be dammed, I am distributing my assets as I see fit. I am just pointing out that you must be realistic and if your prime objective is keeping peace among your children, consider both vertical and horizontal issues.

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.

Should You Discuss Your Salary with Friends, Co-Workers or Family?

I have written several blogs on various money taboos; from discussing your will with your family to planning for inheritances. I enjoy writing or discussing these sacred topics because I like to challenge some of our financial conventional wisdom's. Frankly, I find some people just so uptight on these topics that I enjoy watching their reactions and/or reading their comments on my blog.

A major taboo is discussing your salary with friends, co-workers and family. Although I am personally fairly open to discussing many sacred money topics, I think discussing your salary is generally not a prudent action. However, are there any situations in which a discreet discussion of salary may be advantageous to one or both parties?
  

Friends

Personally, I see few if any circumstances that would ever merit discussing your salary with your friends. The one possible exception may be where your friend is in the same or similar profession. I will discuss that exception in detail below. Otherwise, I see only risk in discussing this topic with friends. Some may lack discretion and inform others of your salary, while others may be jealous or harbor resentment. 

Co-Workers

In the case of co-workers and friends in similar professions, I can see at least 2 reasons why someone would divulge their salary. The first reason being to ensure equality of salary. Many people want to know they are being paid equally, especially in industries where there may not be gender equality. The issue becomes what you do with that information? Do you run to your employer and tell them Don down the hall told you he is making $2,000 more? You put Don at risk with your employer (which is why Don may be hesitant to discuss the issue in the first place), and if you confront your employer you risk your own job, whether your employer is legally entitled to dismiss you or not.

On the other hand, if an employee is discreet, they can use their knowledge of wage inequality in salary discussions to know how far they could try and push for a salary increase, assuming they feel

confident they are a valued employee. Both the above situations involve risk to the employee and their co-worker which is why I would suggest many co-workers do not discuss their salaries (Although, I may have employer bias; as I would not be pleased if someone told me during a salary review that they deserve to be paid as much as Mary or Sam).

Another reason for discussing your salary amongst friends and co-workers in the same profession would be if you or they are job shopping. If you know Jane makes $70,000 working for an engineering firm and your engineering firm only pays you $60,000, you may wish to consider applying for a job at Jane’s firm if all other employment variables are equal. Alternatively, this information may be helpful in pushing for a raise at your current firm, as knowing what other firms are paying and what your firm really needs to pay to compete would be valuable knowledge.

Family

I would think that most people share their salary with their spouse. However, I know there are spouses who try and keep that information private or provide partial disclosure. In some cases they think the information is private, in others they feel their spouse will spend more money if they know what they earn, and finally, many spouses are not forthright so their spouse will be in the dark should there ever be a marital breakdown.

I see no reason to provide such information to siblings, unless it would be useful information for their own careers. Even the most well intentioned sibling could say something by accident and we all know about sibling rivalry and jealousy.

How about younger children? I found a couple of articles on this topic, specifically this New York Times Article titled “Daddy Are We Rich? and Other Tough Questions”. The author, Ron Lieber, discusses ways to handle the question without providing specific income in various situations. The article puts forth an elegant solution by Gary Shor, a financial planner, where he suggests parents turn the question upside down by detailing the expenses they incur to live their current lifestyle. This provides their children with a sense of how much salary would be needed to afford those expenses and what kind of professions could provide such income for their children in the future.

For full disclosure, the reason I wrote this blog is that I recall as a university student considering following in my father’s footsteps. He was a baseball player (a left handed pitcher who was asked to try out for a Cleveland Indian farm team when younger) and I asked him how much do major league pitchers make? 

Just joking about asking him how much pitchers make, but he was asked to try out for a minor league team and believe it or not, in the late 50’s accountants made more than baseball players. Then there was my grandmother who forbade him from trying out for the Indians, so in the end my father decided against baseball and he became an accountant. I have digressed as I often do, however, I do remember having a frank discussion with him about what he made as an accountant that I found very enlightening in making my career choice. In retrospect, I would have preferred it if he had framed our discussion based on what accountants make per hour they work (given the hours I have worked over my career), instead of on a gross annual basis.

Anyways, as I stated at the outset, I would generally dissuade anyone from disclosing their salary, other than where that information provides them or someone they trust, with knowledge to leverage a greater future salary. And in those rare cases when you do disclose your salary, always understand you are taking a huge risk with that information being leaked – intentionally or unintentionally.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Sibling Rivalry-Parents Beware, it is not only a Childhood Issue

This past summer, while driving to a golf course 30 minutes outside of Toronto, my friend and I played a game of high school geography. After playing the game for a few minutes, he asked me if I had heard what had happened to Tiny and his younger brother Tim. I said no, and my friend then related this tragic story.

As part of a family business succession plan, Tiny and Tim were given control of Papahasdough Co. This succession plan was well-founded as both Tiny and Tim had worked in the business for years and were ready to take the business to a new level. Although the brothers were given equal shares of Papahasdough Co., Tiny assumed the role as CEO and Tim was named CFO. However, Tiny, as he had all his life, acted as Tim’s older brother/boss and not his equal. Tim, who had resented Tiny since childhood for acting superior, rebelled. The brothers had a severe falling out and lawsuits followed. The story gets far uglier, but I’ll spare you the gory details.

In this sad saga, sibling rivalry moved from childhood to adulthood. One may think this uncommon; however, according to a 2004 article by Offra Gerstein Ph.D, titled How to deal with Adult Sibling Rivalry, sibling rivalry can significantly impact relationships between adult siblings.

Dr. Gerstein states that “the need to restore one’s worth in one’s eyes may take the form of life long competition. If I “win” and my brother “loses”, then I may prove that my parents were wrong in favoring him. This may not be a conscious thought but the action may reflect this motivation.”

Jane Mersky Leder in her article titled Adult Sibling Rivalry says “Western culture has an obsession with sibling rivalry that began with the story of Cain and Abel and was elaborated by Freud, who labelled and dwelt on the competition between siblings for parental love and attention. It's colored our perception of sibship ever since.”

Sibling rivalry can manifest itself in many ways during adulthood, both financially (the distribution of family assets) and psychologically (perceived favouritism). However, in this blog, I am just going to deal with how sibling rivalry can affect the succession of a family business. The issues of business succession are varied and complex even for families without sibling rivalry baggage.

Family succession issues include: Which child does the parent give the voting shares to? Who is named CEO? If the children do not have the same commitment to the business, should they be given equal shares or equal salaries? These issues are intensified when there is sibling rivalry and I would suggest the parents are ultimately responsible for recognizing that this issue can be divisive and toxic, as in the case of Tiny and Tim.

Even where parents are in a no-win situation, at a minimum they must consider options to mitigate potential issues. Alternatives may include selling the business or giving the shares to one child and equalizing the other child through cash or other means.

A 2001 paper by the National Center for Employee Ownership presented by their research council states “sibling rivalry can pose another obstacle to smooth succession in cases where the retiring owner is transferring company leadership to more than one child. While some rivalries are inevitable, these must be managed so as not to impair business judgement or prevent collaboration from taking place. A wide variety of approaches – such as enlisting one of the retired owner’s trusted advisors or a very senior non-family manager as a mediator – can prove successful in preventing rivalry from becoming destructive.”

Phil Thompson in his paper Succession Planning and the Family Business states that “without careful planning and parenting, including outside counselling, sibling rivalry can wreck a succession plan. Unfortunately, sibling rivalry often stays buried until after the parent is dead. Deal with sibling rivalry right at the beginning, and build a plan that will not fall apart over this issue. Problems can arise either when more than one sibling is involved in the business or when only one of your children is involved. The decision you make with the business can affect how other family assets are considered, including houses and cottages."

Many parent(s) work their entire lives to build a family business with the hope of passing it on to their children. It is very sad that childhood sibling rivalries can be carried into adulthood and it is incumbent upon the parent(s) to recognize this issue and plan to mitigate any potential fallout.

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The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.