The only certainty we have in life is death and taxes. I have found that many people know that they need to plan their affairs but they are afraid to consider what happens when they are not here. Sometimes, the kids do not want to talk about estate planning when the parents are not here. Many years ago, I was invited to a client and the family gathered to talk about estate planning. The kids were all in their forties and the parents in their late 60’s early 70’s. After a thirty minute meeting the kids turned around and said that the parents were in good health and there was no need for any estate planning.
Another person who was uninsurable for the last 25 years was building a business which was very successful. All his kids were involved in the business but he refused to pass the reins to the next generation, not only from an operational point of view but also from a financial point of view. After 23 years, he finally decided it was time to put his affairs in order. He now had to buy a multi million insurance policy to pay the taxes which could have been minimized if he planned 25 years before but he had to hope that his wife who was now 70 was eligible for insurance. Image the size of the premiums for a multi million dollar insurance policy on a 70 year old lady!! The business owner finally got his affairs in order, better late than never but it cost him dearly in terms of taxes and insurance premiums.
If you plan early enough, there are ways to minimize income taxes and estate taxes if you hire an accountant and/or lawyer. Keep in mind, not all accountants and lawyer do these type of transactions, they should have a background in tax matters and hopefully have done many of these transactions in the past.
What happens if you do not plan for when you are not here? I have experienced too many times where the parents say, my kids are great, they would never fight, they will divide everything into 3 (the number of kids in the family). Many years later, that person said that one of the kids now wanted her inheritance now because she needed it, another wanted some jewelry and the three perfect siblings started to fight before the parents passed away.
I have heard of an extreme case where the grandparents allocated everything in the house to each beneficiary and everything in the house including the dining room chairs, china, vases etc had a label on it – the name of the beneficiary. The kids did not like to go up because the grandparents would say I have nothing more to give you. They did not visit to get a gift but s the grandparents took estate planning too far.
If you are hit by a bus and have no succession planning and you own your own business, what happens. If there is no will and no secondary signing officer at the bank, you need to go through the courts to probate the will but if you cannot make payroll of the company and get cheques signed, you may lose your company. I have seen this happen in the past. The employees left because they were not paid, the banks got nervous and called the loans and nothing was left before they were able to process the documents through the courts.
Do the kids sell the business, do they run the business, who is going to be the successor if there are more than one kid in the business. What happens if there are two kids, one runs the business and the other who if not interested, how does one sibling pay out the other to equalize the estate if there is no planning, they may not be able to do so at the time of death.
Avoiding discussing death can cause many problems and in some situations, can cause hardship to the next of kin.