Estate Planning for Parents

Posted by   admin on    January 2, 2004

Happy New Year!! Hopefully, your holidays were filled with merriment and your New Years resolution involved the betterment of health, wealth and happiness. If so, read on!

As mentioned in our prior newsletters, we strive to provide articles on various aspects of wealth management to assist your understanding of why planning for the present and for your future has importance. Yes, we also promote our services; yet, you will find that we always seek to present thought provoking topics that are relevant to our wide audience. (By the way, with your help, our readership has grown and we have begun to archive past newsletters on our web site. Keep those referrals coming! We appreciate it!)

From late fall through New Years, for many, this is a time to be with and care about family. It can also be a time when emotions run high, especially at the holiday dinner table. This months letter focuses on how parents can ease sibling resentment when one child gets more cash. This invariably comes into play when considering your estate planning, but more commonly occurs in everyday life. Also, courtesy of attorneys Steven Keeler and Julie King at Keeler Obenshain PC, we provide some basic estate planning concepts to help you gain a better understanding of why such planning can be very important to you.

At the end, please review our performance update. Then compare us against the Lipper data for low risk, balanced fund managers and youll find that we are well on our way to becoming one of our nations top performing money management firms!

Parents Can Ease Sibling Resentment When One Child Gets More Cash

The mooch. Seems like there's one in every family.

When one child is more financially needy, resentment among siblings can alienate brothers and sisters long after their parents pass away. Some grow angry about the financial burden the sibling is placing on the parents, while others fume that they aren't getting their fair share.

As for the parents, while their beloved dependents may exasperate them, they're often reluctant to say "no" when there is a clear, albeit unrelenting, need. Especially when the child isn't asking selfishly but is truly struggling or, worse, has disabilities that leave parents no choice but to give the child all they can.

Whatever the situation, there are ways -- both financial and practical -- for parents to try to lessen their more independent children's resentment and prevent sibling disgust.

Don't Pretend It Doesn't Matter

If you're wondering whether some of your kids are bothered by your playing financial favorites, consider the conversation and body language that occurred with the entire family around the dinner table this past holiday season. Seemingly harmless jokes, questions or remarks and, yes, even the telling eye-roll are signs that preferential treatment has been duly noted. In less subtle households, the adult children might have come right out and vented their outrage.

Part of the issue for kids is the difference between "need" and "deserve." What you define as "need" may look to your family like undeserved pampering. Sure, your youngest needs a car to get her back and forth to her new job, but why buy her that hot new sports car when a sensible used sedan would do? Even if you have your reasons, it's important to consider how your other children might perceive your actions.

What's Fair and Equal?

Parents struggle with two words: fair and equal. But none of us as parents are equal with our children. Anyone who thinks they are is fooling himself or herself.

A parent, for example, can equally love a daughter who's a doctor and a son who's a fledgling musician, but the kids' financial needs throughout their lives are likely to be far different. Providing financial support for either should be dealt with as the parent deems just.

What's "fair" also may depend on the parents' financial circumstances over time. The oldest, raised during the lean years, may have to help pay their own college bills, while the youngest might get tuition, room and board covered in full during the parents' peak earning years. Also, fair can prove impossible when you're dealing with children with mental or physical disabilities who demand lifelong financial support from their parents.

A Fair and Measured Response

For some parents, the way to address these sibling concerns is with a simple response: "Life isn't fair, get over it."

If you want to do your best to be fair, however, realize that strict scorekeeping can backfire. Mainly, because it is so difficult to do. For example, how do you quantify, or prove to your other children you're keeping fair score? You probably can't, and the last thing you want is to give them leave to check up on your accounting.

There is an exception, though, and that's for big, one-time gifts. If you've given a child a one-time financial fix -- say a down payment on a first home -- there are ways to make it up to other kids, even if you can't afford the same lump sum for each. One way to do it is to treat the gift as an advance on the inheritance.

When thinking about your estate, you'll have to wrestle with the issue of need versus deserve. Even after a lifetime of handouts, a financially needy child might still benefit far more than a wealthier sibling from an equal split of your assets. Does that wealthy doctor deserve complete financial equality with the starving musician? Absolutely. But she probably doesnt need it.

If you've built up a substantial estate, it may make sense for you to square things away during your lifetime. You and your spouse can gift up to $11,000 per child or grandchild each year, without incurring gift tax. Gifting to a grandchild might be a particularly good idea when one child is much more financially secure than others. For that child, the best use of parental cash might be for the grandkids' tax-deferred college-savings plan.

For parents of children with mental or physical handicaps, there may be no additional financial resources left to bequeath to other children. Though these family members usually understand, there's still a way to let them feel equally loved. Talk to your children about what sentimental assets in lieu of cash they'd like to have.

Then Comes 'The Talk'

Once you've come to a financial decision that you and your spouse can both live with, clue your kids in -- but only to an extent. Your wishes may change over the years, so being specific now may lead to anger once you're gone and Junior doesn't get the windfall he had anticipated.

What you need to say, and this applies to all estate planning, is I've prepared estate-planning documents, and here's where they're located in the event of my death. I have given thoughtful consideration for what I've done for each of you financially over my lifetime, and do not assume that I'll be treating you equally at death. What you shouldn't say is I've given your brother 90% of the estate and left you 10%.

Finally, once you've said your peace, calmly move onto another subject. Often, my mom would say, the least said, the best mended. Also, putting your feelings in writing may be a better idea for some parents. Doing so allows for the ability to edit and revise words, and creates an opportunity to eliminate the heat and the emotion.

Some Basic Estate Planning Concept 

The Will: An Estate Planning Minimum

Regardless of the size of your estate, dying without a will can only cause your family frustration and expense in settling the affairs of your estate. In Virginia, the law largely determines how your estate is distributed. Yet, there are many issues that the law does not consider. Keeler Obenshain PC counsels that the two most important reasons for executing a last will and testament are:

  • The right to select the executor of your estate, and
  • The right to select the guardian of your children.

Powers of Attorney and Living Wills

While a last will and testament provides for the management and ultimate distribution of your property after death, it does not become legally effective until your death. As well, a will does not address the potential need for property management during ones lifetime in the event of either physical or mental incapacity. Thus, to make even the simplest estate plan complete, one should always discuss the uses and types of powers of attorney with a lawyer or other estate planning professional.

The Uses and Benefits of Trusts

A trust is a legal vehicle to which property may be transferred for any of a variety of reasons. Depending on your personal situation and needs, a trust can prove even more fundamental or useful to an estate plan than a last will and testament.

The following are some of the most popular use of trusts:

  • To conserve and manage assets on behalf of young or incompetent beneficiaries.
  • To arrange for sophisticated and orderly management of investments.

An inter vivos or living trust (one made during your lifetime) has additional advantages:

  • To minimize probate costs and avoid required accountings after death.
  • Trust assets need not be probated with the court like a will, so one can assure privacy in the transfer of property at his or her death.

Trusts are perhaps most commonly used to:

  • Hold and manage the assets of incompetent or institutionalized family members.
  • Save income and estate taxes.

NOTE: All of the above require consulting an attorney trained and experienced in estate matters. Hoffman, White and Kaelber Financial Services, LLC is not engaged in the practice of law. However, the following are ways in which we will be involved in the process:

  • We discuss issues and help you understand the urgency of estate planning.
  • We discuss decisions you would need to make involving executors and trustees.
  • We work with your attorney to ensure coordination with your entire financial plan.
  • We work with your attorney to build incremental flexibility into the documents.
  • Most importantly, we help you implement your estate plan.

ELF Capital Management Investment Performance Update

For the month ended December 31, 2003, our one-month performance is up 2.47% and our three-month return is up 6.14%.

For disclosure purposes, past performance is not necessarily indicative of future results and ELF Capital Management LLC (ELF), formerly Hoffman White & Kaelber Financial Services LLC, cannot guarantee the success of its services. There is a chance that investments managed by ELF may lose a substantial amount of their initial value.

ELF is an independent discretionary investment management firm established in February 2003. ELF manages a strategic allocation of primarily exchange-traded index funds (ETFs), and may invest in other carefully selected securities. ELF may also employ hedging techniques, through the use of short positions and options. ELF manages individual portfolio accounts for both individual and business clients.

The ELF ETF Strategy returns presented herein represents a composite of actual results from all client portfolios managed by ELF. Currently, it is the only composite presented by ELF and separate client account portfolio positions are substantially similar, except as may be modified for retirement plan accounts and accounts with net equity of $60,000 or less. There is no minimum account size for inclusion into ELFs ETF Strategy composite and accounts with net equity of $60,000 or less have a tendency to downwardly skew the combined results.

The performance data presented herein includes the reinvestment of dividends and capital gains; as well, ELFs ETF Strategy composite returns are presented after deducting actual management fees, transaction costs or other expenses, if any. ELF charges an annual investment management fee as follows: 1.25% on the first $250,000; 1.00% on the next $750,000; 0.95% on the next $4,000,000; and, 0.75% thereafter.

Copyright 2004 ELF Capital Management, LLC. All rights reserved.