Managing succession: learning to share

Updated: Sep 28 2008, 06:53am hrs
The day will come, or may have already, when your children think of your money as theirs.

In uncertain economic times like these, with the stock and housing markets down, credit markets tightening and widespread anxiety about the economic future taking hold, the subject of inheritance can be even more fraught for a family: parents may worry over the fate of their fortune, and children may feel the need to dip into it.

A parent's instinct under such stress - to put off discussion until far in the future - can have its own set of costs.

Putting off discussion and then springing an unwelcome surprise in a will can poison the reservoir of family joy that parents want to bequeath to the next generation, resurrecting or exacerbating sibling rivalries, especially in blended families created through divorce or remarriage after the death of a spouse.

Succession is a natural progression, as old as the concept of private property, yet many parents never bother to tell their children about plans for their estate.

Eric Zeller, a prosperous Rochester businessman, said that when his five children were young he started preparing them for what would be in his will. It's natural for children to think about your money becoming theirs, Zeller said. His approach, explaining his values and his intentions as his children matured, hews close to what experts recommend.

Grown children who know their parents have assets typically expect the money to be left to them in equal shares, say lawyers, wealth advisers and psychologists with long experience in the legal, practical and emotional aspects of inheritance.

Parents, though, often have different plans, deciding that Morgan has enough; that Jack the spendthrift should receive an annuity; that Judy's special needs after an accident require extra consideration; or even that the best gift is to leave the children little or nothing material.

Mitchell Gans, a law professor at Hofstra University in Hempstead, NY, who has helped develop some of the most complex estate plans in the country, recommends that in such cases you should prepare the will and then notify the kids that you are cutting out - or who are getting less than the others.

If you have the courage to do that, professor Gans said, you cut down significantly the chance of litigation after death.

Being upfront may be hard but could serve you in the long run. Informing the children or grandchildren does indeed change the dynamic in the relationship, he said. Kids do get angry at being cut off, but if you say nothing their anger will be directed not at you, but at the favored child. You need to ask yourself, 'Why should this kid be the target of the anger' Why would you do that to them

When you are not honest with a child or grandchild about what you are doing, professor Gans said, you are, in effect, lying: There is deceit going on and that deceit will have consequences.

Unequal distributions, however sensible they may seem to parents, often dredge up sibling rivalries. Claims that a favoured child exercised undue influence over a parent, especially an aged parent, can find their way to the courthouse, where defending the will takes its toll through legal fees.

Gerald Le Van, a family wealth mediator in Black Mountain, NC, and author of Healthy Wealth in Families: Sharing Prosperity, Happiness and Purpose, advises clients that sitting down and talking to your children about your plans could avoid a great deal of litigation.

Le Van, one of two dozen such specialists in the country, said, The children and grandchildren may not like your choices, but at least they feel like you treated them as adults, that you genuinely asked what they wanted and they can then say to themselves, 'OK, this is not what I wanted, but you don't always get what you want.'

Le Van was a trusts and estates lawyer for 25 years before shifting to advising families on wealth transfers, a career switch partly motivated by the widespread practice of estate lawyers' talking only to their clients and not to the beneficiaries of wills.

Liability insurers caution estate lawyers not to talk to the beneficiaries because it is hard to make them understand that you are not their lawyer, Le Van said.

The idea that Mom and Dad and their lawyers should meet with the children and the children's own lawyers is, to Le Van, as disturbing as it is absurd. But as a wealth mediator he faces no such issues in talking to all generations about an inheritance plan, which he said is always valuable and, when there is a family business, it is absolutely crucial.

He said that in the last 26 years only two families - one, the family of his first client - ended up in court over inheritance issues.

The first crucial step, communicating, does not necessarily mean telling children how much to expect, but rather sketching the outlines of how your money will be divided. Zeller, for example, said that as his resources grew, so did his concerns about how wealth would affect his children. He worked at Zeller Electric, an equipment supply business founded by his father, until 1986, when he bought out his father.

Over the next 15 years he built the business from a half-dozen employees to more than 80 while raising four sons and a daughter largely on his own. Resisting the call of the suburbs, he raised his children in the city and urged them to find ways to earn money as they became teenagers.

Seven years ago, Zeller sold the family business for what he thought was an exceptionally good price. He had long ago decided against leaving his money to his children, so while his children were still small, Zeller began talking to them about making their own way in the world.

Zeller said two experiences influenced his views. One was hard times, when he was in junior high in Buffalo a half-century ago and he felt the social sting of not having enough. His parents got by on borrowed money, which made him determined to be independent.

The other view developed after his father prospered, which moved them into the social orbit of wealthy Rochester families. The son noticed that some of his parents' new friends extinguished every spark of ambition in their children by showering them with gifts of money.

They ruined their kids' lives, Zeller said, because they did not make them independent and so they don't know how to work; all they really know is how to ask for more money.

To prevent this way of thinking, Zeller prepared his sons and daughter from early childhood to think about those who were born into less fortunate circumstances. He talked a lot about the value of not just a college education, but of being able to study full time without being distracted by work.

Eventually, Zeller's estate will help as many as 50 poor Rochester children attend college each year, paying their costs and giving each one a little spending money. That is just the kind of distribution that can prompt litigation by children expecting the money will go to them, unless, as with the Zellers, the children not only know about the plan, but embrace it.

His children are familiar with his support for the precollege mentoring program for disadvantaged teens at Hillside Children's Center, the largest agency caring for troubled, orphaned or impoverished children in Rochester, which will administer the scholarships.

Zeller's daughter, April Debes, a suburban Rochester homemaker with one small child, said that, we were raised with the concept of not having an inheritance.

We had money growing up, she said. A nice house in the city, nice vacations, Dad belonged to a club and we went to Catholic schools, so we never wanted, but we never had too many clothes like some kids, and I worked as soon as I could so I could be independent.

Zeller did not completely cut out his children and grandchildren.

I've given my children an education and told them all of their children will also be educated, so that is one of the caveats in 'no inheritance,' Zeller said. My goal is to educate inner-city children, but it would be sort of stupid if I didn't also make sure my own grand-children were educated.

Relieving children of having to save for their children's college education is itself a significant gift. In addition, Zeller, who has a taste for fancy resorts, takes his children and their families on vacation

each year.

The children also inherited some money from their mother. That money helped four of them buy homes. The fifth is still pondering what to do with the money, Zeller said.

Inheritance anxiety among children often arises when one parent dies and the other finds a new love.

One wealthy California real estate investor said that when he became widowed after a half-century of marriage and later married again, one of his three children grew hostile. My daughter was civil-to-cold to my wife, he said, insisting that he not be identified because they are investment partners and he fears stirring more hostility. The man said an offhand remark by his son-in-law opened his eyes to a painful reality.

My daughter is quite a businesswoman and I admired that, and then one day my son-in-law said, 'If we have 50 million we want 75,' and at that point I realised all they think about is money, money, money and that did not feel good, the man said, sighing.

A friend, a retired judge, told him to expect that his daughter would sue to break his will, challenging any provisions that support his second wife, who is a dozen years younger. Jane Peebles, an estate lawyer in Beverly Hills, California, who has represented the man for more than a decade, said that the daughter's actions alarmed her so much that before the wedding she encouraged more than just a prenuptial agreement.

I persuaded my client to get a letter from a psychologist or psychiatrist attesting to his legal capacity, Peebles said. I also recommended, and he agreed, that we videotape the execution of his new estate-plan documents so that he could explain why he was doing what he did and to show he had full mental capacity.

The man said that the thought that my will would be challenged is frightening, humiliating and embarrassing and, now that I have talked to more of my friends about this, I find that this is not that unusual. Olivia Mellan, a psychotherapist who runs the web site, said even middle-aged children tended to interpret the absence of money in a will as being the absence of love from a parent.

When children cannot accept an uneven split or some of the money going to a stepparent, Mellan recommends telling them: This is the only way I can die peacefully. I love you, but when it comes to my money, this is what I have to do. NYT / David Cay Johnston