In the coming years trillions of dollars will be passed from one generation
to the next. Many families will potentially be divided because of issues
revolving around money, such as choosing someone to care for financial
or healthcare decisions, problems when physical and mental capacity declines
and legal issues arising between family members.
Twenty-five years ago when I started in the financial planning industry,
we were preparing for baby boomers to retire. Today one of the greatest
concerns and challenges is the aging population and how assets will be
handled and transferred as people are living longer. The following example
illustrates issues that can arise.
Southern California resident, Bob, is 93 years old and a widower for about
20 years. He has been living on his own and managing his own affairs until
a few years ago. Bob has four children from his first marriage, and his
deceased second wife has four children from her previous marriage. His
estate is worth $3,000,000 with half in real estate and half in his investment
Bob’s original family trust was written over twenty-five years ago.
He had made some updates in the last few years, but Bob’s son (who
lives out of state) contacted me to say they are concerned about his capacity
and him being taken advantage of – especially by his younger lady
friend. Having worked with Bob for several years, this wasn’t the
first time I had heard about Bob’s younger female friends –
some who were half his age. I have also seen his generosity with giving
his children gifts and ‘loans’ of large sums.
The decision was made to hold a family meeting at my office with Bob, his
children and their spouses who all flew in from out of state. With assistance
from Bob’s attorney who joined the meeting by phone, Bob’s
oldest daughter, Lynn, was made Co-Trustee and given power of attorney
to help with financial decisions.
A few months later Lynn calls me expressing continued suspicions about
Bob’s new younger lady friend who is trying to borrow $100,000 from
him. We put a temporary hold on any distributions from Bob’s investment
accounts, and Lynn suggests removing Bob from making any financial decisions.
Bob resists this, but Lynn is concerned about his mental capacity, so
she obtains letters from two doctors stating he is losing mental capacity
to make decisions. His trust document states he can be removed as Co-Trustee
if his mental capacity is diminished.
Bob’s attorney opines these letters are not sufficient to remove
Bob as Co-Trustee. The family seeks counsel from a different attorney
who recommends Bob’s son be added as Co-Trustee to join in that
role with daughter Lynn. Now with three Co-Trustees, two of three signatures
are required for transactions. Shortly after this, Bob experiences a sudden
change in health and can no longer live independently. The family relocates
him to live near daughter Lynn who also oversees his care. Bob’s
son and daughter continue to serve as Co-Trustees and appear to be adequately
handling his financial affairs.
This example provides a number of considerations when establishing or amending
your estate plan:
- Thoroughly discuss with your children and all parties involved what is
in your plan before signing your documents.
- Routinely review your estate plan and update as needed when dramatic life
changes occur – e.g. divorce, death of spouse, etc.
- Determine if someone outside your family is a better choice to manage your
financial and business affairs if you become incapacitated or pass away.
This might be a close family friend, paid professional fiduciary or trust company.
- Good resources for starting these discussions are your professional advisors
– i.e. attorney, tax professional or financial advisor.
Mark Tsujimoto is a Financial Planner with Cetera Advisor Networks LLC
and a member of Torrance Memorial’s Professional Advisory Council.
firstname.lastname@example.org. (310) 373-7351
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any other named entity. The opinions contained in this material are those
of the author, and not a recommendation or solicitation to buy or sell
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but Cetera Advisor Networks LLC cannot guarantee or represent that it
is accurate or complete.