Bradley T. Klontz, Psy.D., CFP®, is co-founder of the Financial Psychology Institute™, an associate professor of practice at Creighton University Heider College of Business, and a managing principal at OCCAM LLC. He is an author/editor of several books, including Mind Over Money, Facilitating Financial Health, The Financial Wisdom of Ebenezer Scrooge, and Financial Therapy: Theory, Research, and Practice.
Stephen B. Yim, J.D., LL.M., is a sole practitioner concentrating in the areas of estate planning, wills, trusts, and supplemental needs planning for families who have children with disabilities, charitable tax planning, estate and gift tax planning, and estate administration.
Consider this scenario: Edward (age 65) and Brenda (age 60) are the parents of two children, Steve (35) and Audrey (33). Audrey is in a marriage with an abusive man. Her husband has been financially irresponsible, unemployed until recently, and had previously forced them into bankruptcy. Audrey knows her family doesn’t like her husband but they have three children together, and he has been making progress since his court-mandated anger management classes. She is not prepared to leave him, despite years of her family’s urgings. Their dislike for her husband has reinforced Audrey’s childhood belief that her parents love Steve more than they love her. Edward and Brenda have left half of their estate to Steve and have made him trustee of Audrey’s half of the estate. This was done with the intention of protecting Audrey, Audrey’s children, and their assets. Edward and Brenda have not shared their plans with either of their children.
Now consider this scenario: Susan passed away at age 93. She was survived by three daughters, 14 grandchildren, and 23 great-grandchildren. Her eldest daughter pre-deceased her and left Susan five grandchildren and seven great-grandchildren. Susan’s estate plan, which was created before her eldest daughter passed away, indicated that she wanted her estate to pass to her surviving daughters. While it is likely she had a rationale for doing this instead of a per stirpes distribution where one-fourth of her estate would have passed down to the descendants of her pre-deceased daughter, she never shared this plan with her family. When her estate plan was made known after her passing, a family fight ensued. Several of the grandchildren of her deceased daughter accused two of Susan’s surviving daughters of manipulating Susan to cut out their branch of the family tree. Despite being a historically close family, Susan’s family fractured and many of her descendants have stopped speaking to each other.
When we don’t know a person’s true intentions, we make up a story. We then convince ourselves that our story is true. The story we make up is based on our conscious and unconscious beliefs about ourselves, our family, the world, our self-esteem, our perceived position in our family system, our relationship with our parents and siblings, and any unfinished business or emotional wounds we have experienced in relation to the grantor. Unfortunately, the story we make up about a grantor’s intentions is often not the one that was intended, and this miscommunication can destroy relationships, dismantle families, and cause life-long emotional wounds.
Despite the universal need to disperse one’s wealth and possessions in a thoughtful manner, only 30 percent of people take the time to establish an estate plan, according to the 2003 book Preparing Heirs by Roy Williams and Vic Preisser. Of these estate plans, 70 percent fail to accomplish the client’s true intentions. Strategies to minimize taxes and avoid probate are just the tip of the iceberg; however, that is where traditional estate planning starts and often ends.
Research reported in Preparing Heirs has shown that less than 2 percent of estate plan failures occur because too much tax was paid or the estate went through probate. While some of the remaining failures are related to an inability of the beneficiaries to manage their wealth properly, many failures occur because professionals—primarily estate planning attorneys and financial planners—fail to help their clients develop a plan and process to accurately communicate their true intentions. These failures can result in confusion, deep emotional wounds, fractured relationships, and family chaos.
In traditional estate planning, the client often seems to be playing the game telephone. In telephone, a group of players arranges themselves in a circle. The initiator whispers a message to the person next to them, who whispers it to the next person, and so on. By the end of the game, the message returns to the sender, and it is invariably and often quite humorously, completely different. The intended message is changed significantly, often beyond recognition.
Each recipient subtracts or adds to the message based on his or her ability to listen and their individual biases. The message is further distorted by the communication style of the next sender. In the end, the intended message is lost.
We must encourage our clients to stop “telephoning” their last intentions. The goal of estate planning should no longer be focused exclusively on the formulation of a legal document. Clients should have the opportunity to accurately and fully communicate their true intentions to those they leave behind.
Some clients may be hesitant to have a conversation with beneficiaries due to a reluctance to talk about finances. Others avoid it because they fear that sharing their wishes with beneficiaries will cause conflict. Still others have not thought to have the conversation because it was never recommended to them by their estate planning attorney or financial planner. However, it is essential for financial professionals to discuss the pros and cons of not making these intentions clear, particularly with regard to the beneficiaries’ interpretations of their relationship with the grantor as well as their relationships with other beneficiaries.
As a result, families are often set on a path of destruction as beneficiaries are left to make up stories about what was truly intended in the absence of information from the grantor. We must encourage and facilitate clear, unambiguous communication to secure a clear intention. The traditional approach to estate planning has failed to do what matters most—pass along a client’s true intentions. Where estate planning attorneys may fail to facilitate this communication, financial planners are in an ideal position to identify possible consequences of a lack of communication and recommend a remedy.
Lost In Translation
A client comes in with intentions, and the attorney, based on his or her perspective, crafts the legal documents to reflect these intentions. However, because of the unique language that attorneys use and their focus on the “what to dos” and “how to dos,” client intentions are often bleached out, leaving a black and white legal document that may fail to pass on the heart of what the client intended.
For example, a plan may read that Anthony gets 100 percent of the estate and Megan gets nothing. Although this provides clear distribution instructions, it may leave out the couple’s true intention of supporting Anthony who has chosen the lower-paying career of a teacher while Megan is a corporate executive with a high six-figure income. The couple may be merely wanting to support one child while feeling quite proud of another who, in their mind, doesn’t need help.
Without explaining their rationale and intentions, the risk for misunderstanding is considerable, leaving Megan feeling hurt or left out and perhaps unintentionally causing or deepening a rift between Megan and Anthony.
Or consider the presentation of a “liquidation” clause. When beneficiaries see the word “liquidate,” while the legal meaning is clear—to sell the property—the underlying intention is not. As such, misunderstanding can result. Given the opportunity to explain that liquidation really means that the clients value their children’s relationship with each other above anything else, and that the property has to be sold so that the relationship among the children is not at risk, can clear up any misunderstanding.
Without a formal process for passing along intent, the intentions expressed to an attorney during the client meeting can become lost in translation.
The Family Meeting
The stereotypical Hollywood “reading of the will” scene wherein the attorney reads the grantor’s last wishes to a group of beneficiaries who are shocked, disappointed, and/or excited represents a failure in estate planning. Instead, clients should be asked to consider, when appropriate, to invite their family and trusted advisers to a family meeting. Ideally, a meeting with the client, family members, attorney, and financial planner can take place so the client can share their intentions.
We recommend that estate planning attorneys and/or financial planners facilitate a family meeting well before the transfer event. The family meeting can start with the grantors expressing their intentions. In other words, they start the meeting with why they came to see an estate planning attorney or financial planner in the first place, expressing the “why” of the estate plan. This “why” builds the foundation for the entire estate plan. After the intentions are made clear by the clients, the attorney can explain how the estate planning legal documentation supports the client’s intentions. Family members are then able to ask questions of the grantor to seek clarity. When appropriate, they may even have the opportunity to express appreciation or even frustration with the grantor.
At times it might feel uncomfortable, but allowing grantors and future beneficiaries to air out differences of opinion while there is time for them to resolve them, can allow for a more successful transfer of true intentions.
Note: The authors thank L. Martin Johnson, Psy.D., director of the Hawaii Center for Psychology, with his assistance on this article.