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Family Harmony: an All Too Frequent Casualty of the Estate Planning Process

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Family Harmony: an All Too Frequent Casualty of the Estate Planning Process THIS ARTICLE WAS PUBLISHED IN THE MARQUETTE ELDER’S ADVISOR VOL. 8 NO. 2, SPRING 2007 . FAMILY HARMONY: AN ALL TOO FREQUENT CASUALTY OF THE ESTATE PLANNING PROCESS Timothy P. O’Sullivan* INTRODUCTION..................................................................................255 SELECTION OF FINANCIAL FIDUCIARY.............................................257 ROLE OF FAMILY DYNAMICS..................................................261 ISSUES INVOLVING THE ADMINISTRATION OF AN ESTATE OR TRUST..........................................................................263 FIDUCIARY FEE ISSUE..............................................................269 FIDUCIARY LIABILITY ISSUE ...................................................270 “PERFECT STORM” SCENARIOS ..............................................272 BURDEN PLACED ON FAMILY FIDUCIARY .............................276 BENEFITS AND COSTS OF THIRD-PARTY FIDUCIARY ............278 *Timothy P. O’Sullivan is a partner with the law firm of Foulston Siefkin LLP in Wichita, Kansas, concentrating his practice in the areas of estate planning, elder law, probate and trust and taxation. He earned a J.D. degree from Washburn University School of Law and an L.L.M. in Taxation from the University of Missouri-Kansas City School of Law. The author is a fellow of the American College of Trust and Estate Counsel, past president of the Executive Committee of the Real Property, Probate and Trust Law Section of the Kansas Bar Association (KBA), (1992-1994) and a member of the Executive Committee of the KBA Section of Taxation. In 1994, he received the KBA’s Outstanding Service Award for his services in seminar presentations, Kansas bar activities, and lobbying efforts. Mr. O’Sullivan also served as vice-chair of the Significant Probate and Trust Decisions (1997-2001) and as chair of the Liaison with State and Local Bar Association Committees of the Real Property, Probate and Trust Law Section of the ABA (2000). He served as President of the Kansas chapter of the National Academy of Elder Law Attorneys (NAELA) (2003-2005). Mr. O’Sullivan also served as a member of the Kansas House of Representatives (1979-1982), and as an adjunct associate professor in Estate Planning at a number of law schools including Washburn University School of Law. Mr. O’Sullivan is listed in the 2005-2006 edition of THE BEST LAWYERS IN AMERICA, the 2005-2006 edition of Missouri/Kansas SUPERLAWYERS and enjoys an “AV” rating in the MARTINDALE-HUBBELL LAW DIRECTORY. 253 OSULLIVAN REVISED MQE.DOC 5/17/2007 6:16:52 PM 254 MARQUETTE ELDER’S ADVISOR [Vol. 8 SELECTION OF THIRD-PARTY FIDUCIARY..............................280 PROVIDING FOR FAMILY INPUT IN THIRD PARTY FIDUCIARY DECISION-MAKING......................................283 ACHIEVING A BALANCED RISK/BENEFIT PERSPECTIVE........287 DECISION MUST REST WITH CLIENT.....................................289 BEQUESTS OF FARMS AND OTHER CLOSELY-HELD BUSINESS TO CHILDREN ...............................................................................290 GIFTS TO CHILDREN ..........................................................................294 LOANS TO CHILDREN ........................................................................302 CHILD’S CLAIMS FOR SERVICES OR CARE PROVIDED TO A PARENT ...................................................................................305 INTENDED DISPARITY IN CHILDREN’S SHARES ...............................308 UNINTENDED DISPARITY IN CHILDREN’S SHARES..........................312 ARBITRATION AND MEDIATION PROVISIONS..................................314 CONTRACTUAL VERSUS NON-CONTRACTUAL NATURE OF TESTAMENTARY INSTRUMENT...............................................318 RESTRUCTURING THE TESTAMENTARY INSTRUMENT .....................320 HEALTHCARE ADVANCE DIRECTIVE ISSUES....................................322 WHETHER TO ADVISE CHILDREN OF THE ESTATE PLAN ................324 ESTATES HAVING A CLOSELY-HELD BUSINESS ....................326 NON-BUSINESS ESTATES ........................................................326 “BLENDED FAMILY” SITUATION............................................334 NON-DISCLOSURE SITUATION...............................................336 WARDING OFF UNWANTED QUERIES ...................................338 SUMMARY................................................................................339 CONCLUSION .....................................................................................340 OSULLIVAN REVISED MQE.DOC 5/17/2007 6:16:52 PM 2007] FAMILY HARMONY IN ESTATE PLANNING 255 INTRODUCTION Estate planning in its broader context extends beyond the traditional confines of providing for the investment, management, and disposition of assets in the event of the owner’s disability or death. Estate planning includes preservation of family values and traditions, not the least of which is family harmony. Family relationships that are particularly vulnerable in the estate planning process are those between a parent and adult children, a step-parent and adult step-children, adult children and adult step-children, and among adult children. Such relationships are at risk not only in the implementation phase of the estate plan following a parent’s or step-parent’s disability or death, but also if a parent chooses to seek their input in the development of the estate plan or inform them of plan aspects following its completion. Spousal disharmony is an infrequent casualty of the estate planning process.1 Although married persons typically come from different perspectives, they nonetheless are inclined to discuss and ultimately agree on the appropriate estate plan.2 Due to the higher age of their client base, elder law attorneys confront vulnerable family situations involving clients with adult children and/or step-children on a more frequent basis than estate planning attorneys in general. When asked, most estate planning clients are quick to confirm that they place a higher value on the preservation of family harmony than on the amount of worldly possessions they pass on to family members following their death. Yet, paradoxically, most estate planning attorneys historically seem to devote little more than a modicum of attention to this issue 1. See Carolyn L. Dessin, Protecting the Older Client in Multi-Generational Representations, 38 FAM. L.Q. 247, 267-68 (2004) (discussing how couples can be represented by the same attorney because “[i]n most situations such consent [to joint representation] is probably not required because the family is harmonious and the couple’s interests are not adverse”). 2. Id. OSULLIVAN REVISED MQE.DOC 5/17/2007 6:16:52 PM 256 MARQUETTE ELDER’S ADVISOR [Vol. 8 when counseling clients or drafting estate planning documents. Emblematic of this oversight is the paucity of estate planning seminars, textbooks, treatises, and articles that even address this issue or give it any extended discussion.3 The limited discussion found in legal periodicals that even touches upon family harmony is mostly directed at the much narrower issue of avoiding challenges to the testamentary instrument where there is at least one disfavored adult child. For example, when all children are either not receiving an equal share of their parent’s estate or trust or at least one child’s care is being held in a long- term restrictive “spendthrift trust” with a third party trustee.4 It is as if the family harmony aspect of estate planning is of little importance to clients, not technical enough to be worthy of discussion in erudite estate planning publications and seminar presentations, or strictly an internecine family issue more properly suited to family counselors than estate planning attorneys. The failure of estate planning attorneys to focus on family harmony issues undoubtedly has been a major factor in the prevalence of disharmonious situations occurring among the family members of their clients in the planning, family discussion, and implementation phases of the estate planning process. The purpose of this article is not to cast any “broad brush” aspersion on estate planning attorneys as a class for not adequately addressing this issue. The author was comfortable far too long in a glass-laden estate planning edifice for that even to be an option. It was only after more than a decade of practice concentrated in estate planning that the author began to recognize and appreciate both the magnitude of this issue and 3. See, e.g., GEN. PRACTICE SESSION, AM. BAR ASS’N, WILLS AND ESTATE PLANNING GUIDE: A STATE AND TERRITORIAL SUMMARY OF WILL AND INTESTACY STATUTES (1995) (discussing distribution to descendents, will execution, estate planning, and gifts without mention of family harmony considerations) (hereinafter WILLS AND ESTATE PLANNING GUIDE). 4. See, e.g., Donna R. Bashaw, Are In Terrorem Clauses No Longer Terrifying? If So, Can You Avoid Post-Death Litigation with Pre-Death Procedures? 2 NAT’L ACAD. OF ELDER L. ATT’YS J. 349 (2006). OSULLIVAN REVISED MQE.DOC 5/17/2007 6:16:52 PM 2007] FAMILY HARMONY IN ESTATE PLANNING 257 that many generally accepted estate planning strategies and the conventional wisdom undergirding them are inapposite to the maintenance of family harmony. Nor would any such opprobrium be appropriate. Focusing on family harmony simply is not intuitive to estate planning attorneys. The proper recognition of this problem area also has been hindered by a long-standing professional emphasis on technical estate planning issues which has held sway against the assimilation of suitable family harmony strategies
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