A Terrible Place to Keep Secrets

Start a conversation about your will with your family.

Do you know what your parents plan to leave you? Have you told your kids what you plan to leave them?

Many parents never plan ahead. Even those who do rarely discuss the subject with their kids. Take the quiz below and see how you score.

If you're the son or daughter:

  • Do you know where your parents keep their wills?
  • Do you know who their executor is?
  • Do you know how they plan to divide their assets?
  • Do you know who they want to receive certain items of sentimental value?
  • Have you told them how you feel and what you think about the above questions?

If you answered "no" to any question above, you need to have a serious conversation with your parents.

If you're the mother or father:

  • Have you told all your kids where you keep your will?
  • Have you told all your kids who your executor is?
  • Have you told all your kids how you plan to divide your assets?
  • Have you told all your kids who you want to receive certain items of sentimental value?
  • Have you asked all your kids how they feel and what they think about the above questions?

If you answered "no" to any question above, you need to have a serious conversation with all your children.

A will is a terrible place to keep secrets, yet that's exactly what most Americans have done. The reasons don't matter. What does matter are the consequences of keeping secrets. Maybe you have not experienced any problems yet, but chances are you will.

I say this because my colleagues and I have seen problems arise in dozens of our clients' families. If you haven't talked with your family, you are setting the stage for them to suffer the same problems. Here are some we've seen:

Family Problem #1: The Child's Plan Thwarts the Parent's Plan

Mom, a widow, has $400,000 in assets. She's concerned about her health and anticipates that she'll eventually live in a nursing home. She fears that spending all her money on long-term care will mean leaving nothing for her only daughter and grandson.

To avoid this problem, Mom hires an estate attorney and executes an elaborate estate plan designed to protect her assets from the costs of long-term care. Mom's plan effectively supports her desire to leave her assets to her daughter and, in turn, to her grandson.

Some years later, Mom, now 84, indeed enters a nursing home. Her assets have been protected: Her daughter now owns and controls all $400,000. Since Mom has no assets, her expenses are covered by Medicaid.

Next, the daughter, herself now 63, suffers a heart attack and dies. She had not written a will of her own.

Because the daughter dies intestate, the state orders that her son receive only one-quarter of her money. The rest is awarded to her surviving mother. Mom gets back $300,000 of the $400,000 she was trying to pass on. And because Mom now has the money, Medicaid claims it as reimbursement for the expenses it had paid on her behalf.

Thus, while Mom had created an estate plan to shelter her assets, her efforts were thwarted because her daughter did not create an estate plan of her own. If her daughter had written even a simple will — naming her son as sole heir — he would have gotten the entire $400,000. Instead, he got only a fraction.

When you write your will, make sure the people to whom you're giving your money understand what you're doing — and why. Make sure they understand what they have to do and make sure they do it. Otherwise, all your efforts might be for naught.

Family Problem #2: You Love Your Children Equally

Many parents are terrified of showing favoritism among their children. To avoid that problem, many parents avoid writing a will at all. By saying nothing, you eliminate the risk of hurting your children. But as we've seen, this is a terrible solution.

The next most common tactic is to leave all your assets equally to all your children. You love them all equally (or, at least, you want them to think so), so let's just let them divide up everything equally. This is often the worst thing you can do.

When one of my clients died, she left everything to her son and daughter equally. Among her assets was a condo at the nearby shore, worth about $140,000. The son, who lived far away, wanted to sell it and split the money with his sister. The daughter, who lived an hour's drive from the condo, wanted to keep it, as her own family enjoyed using the condo on weekends each summer.

He wanted to sell. She didn't. He offered to buy her out. She refused. He is now suing her, and they haven't spoken to each other in three years. Thanks, Mom.

The correct strategy would have been for Mom to either (a) leave the condo to one child, and other (equivalent) assets to the other child, or (b) sell the condo and give equal amounts of the cash proceeds to each child for them to do with as they please.

Remember: The only asset that can be split evenly and easily is cash.

Family Problem #3: You Think Your Kids Love Each Other

My kids get along great, you say. They'd never fight with each other over something like an inheritance.

Oh, yeah?

I'll concede that your three children love each other and are great friends. But funny things happen over time. Such as marriage. Your three children will bring into the family three spouses. And just wait until in-law #1 finds out that, upon hearing news of the death, in-law #2 raced over to the house, rifled through the drawers, and is now in possession of Grandma's diamond ring or Granddad's coin collection.

"She always intended it for me!" someone all-too-often claims. If you don't expressly tell everyone your intent, you're setting the family up for a huge fight. And I mean tell everyone — not just the person to whom you plan to give the item. If you make a private promise, no one else will believe them. Tell everyone, write it down in something called a "letter of intent," and attach it to your will.

Rather than leaving property to everyone equally, have your will instruct that all your assets be liquidated, with the resulting proceeds divided equally. It's easy to split dollars, not so easy to split houses, televisions, cars, jewelry, and furniture.

This idea might be hard to accept because many people associate their sense of self with their possessions. Therefore, you might resist the idea of instructing that all your worldly goods be sold at auction. But if this attitude prevents you from establishing clear rules for the handling of your assets at death, you're setting the stage for a major fight among your heirs.

You're also being unrealistic. If you leave all your worldly possessions to your kids, guess what they're going to do with all your stuff? Sell it at auction, of course. Haven't you ever seen those signs along the highway? "Estate Sale This Saturday." That sign means someone died and their kids are having a big yard sale.

If you think your kids are going to keep all the stuff in your house, think again: Your kids already have a house of their own, and it's already full of their own stuff. So get over it and instruct that your assets be liquidated. That way, your kids won't have to fight about it.

Family Problem #4: You're Mistreating the Problem Child

If you're like most parents, you consider your children to be your pride and joy. Unless one of your kids is a lazy, no-good, rotten bum — the kind of person who would spend in a month whatever money you left him, no matter how much you leave.

You might be tempted to cut this person out of your will, leaving your money to the rest of the family. Be careful if you plan to do that, for the strategy might not be as effective as you think.

You see, as a loving parent, you're always there for this child. Others of your family, in fact, have had to go without as you've devoted additional effort and attention to the problem child. Now, in your will, you want to set things straight. You'd like to give money to the other family members. They could use it, they deserve it, it's their reward for their years of helping the problem child, too. Besides, if you give the money to the problem child, he'll just squander it in a short time.

So, you might think, you'll just cut the problem child out of the will.

I've come across several cases where this was done, and in each case, the result was the same: The other children feel remorse at the fact that the problem child was disinherited and, knowing this, the problem child takes advantage of their guilt and generosity. The result: Each of your pride and joy becomes a surrogate parent to the problem child.

By giving your money only to your pride and joy, you condemn those children to a lifetime of supporting the problem child. A better solution, although it might not seem so at first, is to give the problem child an equal share and let it be known throughout the family that that's it. "Don't rely on your brothers and sisters like you relied on us. We took care of you because we're your parents, but they are not. They have their own kids to care for. Leave them alone." Better still, put the problem child's money into a trust, having the trust pay an allowance over the child's expected lifetime. This is called a Spendthrift Trust. To learn more, talk with an estate attorney.

If you do not give this instruction to the problem child — with the full knowledge of the pride and joy — your hopes will not be realized.

Family Problem #5: You're Mistreating Your Pride and Joy

One of my clients had four children. One became a surgeon, another a teacher, the third "wants to be an actor," and the fourth has three children and is happily married to a civil servant.

In their wills, my clients intended to leave their assets to three of their children, with only a token amount to the one who became a doctor. When I inquired as to why, they explained, "He's doing much better than his brother and sisters, so he doesn't need the money." They wanted to leave their money to the kids who needed it most.

Without realizing it, my clients had chosen to punish their son for achieving success. They had not told him of their plans, because it never occurred to them that he might not understand. And he might not. "I should have become an actor instead of working my butt off for eight years in medical school!" he may say. Animosity between him and his siblings could ensue. Or maybe he would understand — but his wife and kids may not.

If the son does not learn of his disinheritance until after his parents have died, his brother and sisters will be the recipients of his anger and frustration. And that's assuming he knows his parents' reasoning. An even worse case is that he doesn't know why they cut him out of the will — only that they did. He could become very hurt and confused. In the end, he could challenge the will in court, demanding his share.

His parents had not envisioned any of this. They could prevent all these problems merely by talking with him, explaining their thoughts and concerns and asking his opinion. He's going to offer his opinion sooner or later, and sooner is much better, while there is time to change it.

The One Asset You Must Pass On

If there's one thing you must leave your family, it's this: Peace. Don't set the stage for a family war, or Thanksgiving dinner will never be the same. Talk with your family about your plans and about theirs. Above all else, remember: A will is a terrible place to keep secrets.

Originally published in The Truth About Money

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