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Congratulations! You are in the process of giving away more than $40 trillion over the next few years. Your generosity is much appreciated by the recipients of your largesse—your children, your grandchildren, other relatives, charities and, naturally, the government.
You're not giving away that money on your own, of course. You are being joined by the other Americans who have accumulated significant amounts of wealth, ranging from Warren Buffett's $44 billion net worth to estates of less than $1 million. And, as you know, you're going to give away that money whether you like it or not. None of the recent advances in science and biotechnology have found a way to defeat either death or taxes.
You may have done a great job earning money and accumulating wealth, but there's still time to make a mess of things. There are the usual ways, the ones you can read about in The Wall Street Journal, Business Week and Money: Keep records of your assets in lots of different places, so your children have to hunt all over creation to find them. Neglect to hold assets in your legal name or the accurate name of a trust. Fail to provide for enough liquidity to pay estate taxes, forcing the sale of valuable assets at inopportune times.
But if you really want to make life miserable for your survivors, you are going to have to do better than that. You are going to have to assure, not only that the government will get a big chunk of your hard-earned wealth, but also that lawyers representing unhappy beneficiaries will be able to spend years and hundreds of thousands, if not millions, of dollars fighting about what you "really" wanted. Here are some tips for getting that job done.
1. Treat your children unequally without explaining why, or, if you do offer explanations, lard them with legalese so it sounds like lawyers wrote them. This tactic is pretty easy to accomplish. There is no such thing as enough money to guarantee that your heirs will be happy. But what's guaranteed to make them unhappy is to know that others in "similar" or "comparable" situations got more money than they did. There are lots of reasons for unequal treatment—for example, different earning abilities, different needs, special needs. The list goes on and on. But failing to provide an honest, personal and specif ic description of your reasoning makes it almost certain that the "losers" will challenge the "winners." Tommy Smothers often bitterly reminded his brother, "Mom always loved you best," but he never did anything about it. Today he'd hire a lawyer to prove that Dick exercised undue influence over Mom to get his hands on the family's wealth.
2. Keep secrets from your family and exclude them from discussions about your estate planning. This strategy is a perennial favorite. Many of us find it difficult to talk about either death or money with our families. So we don't, even though we know that, especially as we age, it becomes more and more important to get help to achieve our objectives. Never swallow your pride and ask for help. Excluding your family from the decision-making process eliminates any chance to create "buy-in" for your decisions and to help people understand them. No one likes unhappy surprises, and so those on the receiving end will almost certainly conclude that something must have "gone wrong."
3. Be overly rigid in bequests, especially those to be paid over a long period of time. Ignore the fact that things change. Dictating that beneficiaries of a trust receive $5,000 a year may make a lot of sense if you're creating a trust worth a few hundred thousand dollars, so be sure to require the trustee to keep the payments at that level, even if the market does well and the trust ends up worth millions many decades later. Similarly, limiting scholarships to particular fields assures that your wishes will continue to be respected, even if it means requiring a school to maintain programs in buggy-whip manufacturing, eight-track tape technology, or typewriter repair.
4. Pit one survivor against another, especially when you know they can't get along. Combining a second marriage to a much younger spouse with eliminating bequests to one's children is the classic way to achieve this goal, but there are others. Putting one of your children in charge of a trust benefiting others works well, too. This approach works best when you combine it with Number 2, above, keeping it secret from those who are most likely to feel cheated.
5. Continually change your estate plan in major and unpredictable ways. The more wills you have, and the more wildly they differ from each other, the more possibilities for fights over whether you were competent or unfairly influenced. This method also increases the complexity of the factual investigation, assuring that the lawyers hired by different factions will be able to spend lots of time investigating your mental state at various times during your life.
6. Never change your estate plan—set it and forget it. This approach goes well with Number 3, creating a rigid structure designed to last a long time. It eliminates any temptation you would otherwise have to adapt your estate plan to changing circumstances.
7. Send mixed signals. Announce to anyone who will listen that you are opposed to frivolous spending, then give a lot of money to the Society for the Preservation of the History of the Hot Dog. Lecture your heirs on the evils of taxation and hold onto all your money until you die, assuring the maximum possible estate tax bite.
8. Make tax minimization the be-all and end-all of your estate planning. By treating estate planning primarily as a battle of wits with federal and state governments to wring every last cent out of your tax bill, you assure that your other priorities (ease of administration, fairness, and focus on causes and people you care about, for example) get ignored.
9. Ignore your advisors, or at least make it hard for them to do their jobs. Ask your lawyer to prepare documents for your signature, then don't make time to sign them. Multitask during meetings so that your legal and financial advisors are never sure what you are thinking. Move from one state to another without considering all the legal consequences or letting your advisors know in advance.
10. Choose advisors who have no people sense. There are plenty of people who are financial geniuses or legal maestros, but who are rigid, overly controlling and judgmental. Be sure to choose one of them as your personal representative or trustee of a trust. The financial returns are likely to be stellar, but everyone will end up angry and bitter.
See how easy it is? As more money starts to change hands between baby boomers' parents and their progeny—and before long from baby boomers themselves—the opportunities for bitter battles over money and control are going to be almost limitless. John Jacob Astor's heirs, the heirs to the Johnson & Johnson fortune and many others have followed several of these guidelines. Be sure not to miss out.
Someday all this could be yours.
(And Eight Tips for Cleaning Up the Mess)
Cleaning up a messy estate plan can require time and money, but not nearly as much as leaving the mess untouched. As you consider creating or revising your estate documents, think about the following:
1. Treat your heirs equally, or at least explain to those administering your estate or trusts why you are you are not doing so. You may not want to explain in your will or trust your precise views about various family members and causes, but you should work with your advisors to be sure those close to you know the reasons for your decisions.
2. Include your family in your estate planning process, and help them to understand your decisions.
3. Be somewhat flexible in your bequests, so that they don't become obsolete or nonsensical when times change. Flexibility is especially important in documents governing decisions that will be made many years from now.
4. If you know that certain of your survivors are not likely to get along, fashion your estate to minimize friction.
5. Update your estate plan when circumstances warrant, but avoid frequent and dramatic changes that would support claims you were unstable or impulsive.
6. Let your estate documents mirror your priorities in life. Don't use them to announce a new pet cause.
7. Choose estate-planning advisors who are skilled at dealing with people as well as with documents, and who do not let a single issue, like taxes, overrule all other considerations. Then listen to them.
8. Once documents are prepared to your satisfaction, sign them promptly.