Why many estate plans fall off track

Numerous studies have shown that the biggest risk to the continuity of family wealth across generations is family discord. In fact, it’s a bigger risk than market or portfolio risk or estate taxes.¹ Per the Williams Group, breakdown of communication and trust account for 60% of wealth transfer breakdowns.²

Many estate planning attorneys even describe “communicating the plan” as the final step in the estate planning process. If communication about family wealth and future plans is so important, why don’t more people talk about it? Often, the answer is simple: because these conversations can feel uncomfortable. Death, money – neither topic is particularly welcome. It’s natural to be afraid of not delivering the message effectively, of upsetting one or more of your beneficiaries, of “spoiling” your kids by telling them too much, or even, simply, of your own mortality. So many people avoid the topic altogether.

But failing to communicate can have real and practical consequences. Below are some common scenarios that can lead to issues. Note as you read these that every situation is unique, so it’s important to consult with your broad advisory team to determine the amount and detail of information that you provide to your family in your particular circumstances.

No one but you knows what documents you have arranged or where the documents are physically kept. After your passing, there is often a need for quick financial decision making, including paying bills or making investment decisions. It is important your family knows who is in the driver’s seat, and that person (or team of people) also needs to have all the information required to make decisions. We saw dramatic examples of this in 2020, in the early days of COVID-19, when many people fell ill or even incapacitated, leaving their family members to make decisions about their care and their finances—all while the financial markets heaved. It’s far better to train and equip your selected person in advance of an emergency, to ensure they have the relevant information, such as your balance sheet, bank and investment account details, and the proper documents giving them authority to take action. In many cases, your financial advisor, accountant, or attorney can help your designated representative gather relevant information and documentation.

Your family doesn’t know the extent of your wealth. Some parents shield their children from their wealth. While lifestyle and other indicators frequently tip off savvy children to the family’s wealth, in some cases, the revelation of significantly larger or smaller net worth than expected comes at a great surprise upon a parent’s passing. Such discoveries often come with a strong emotional response, including potential resentment, or wondering why they weren’t trusted with the information in the first place. Practically speaking, if you have much more than your children know about, they may be overwhelmed or unprepared to manage it upon your passing. Being communicative about the extent of your wealth helps ensure heirs are well-prepared, so they understand what will be expected of them to successfully steward it into the future.

Your expectations or concerns for beneficiaries haven’t been shared. Being open about how you plan to pass along responsibility or money to your beneficiaries before your death can be important. This is particularly important when beneficiaries don’t receive equal shares of an estate. There may be genuine reasons for this; for example, one child might require more assistance than another or have special needs, or one child may have been provided for significantly during their lifetime. If you don’t share this context before your death, your beneficiaries are left to draw their own conclusions about your intentions.

You put one beneficiary in charge of everything. This can lead to conflict, especially if your plan to do this wasn’t communicated beforehand and/or the other beneficiaries don’t know or understand the reason for this. Also consider if the person named even wants to serve in such a role (a good reason, among many others, to make sure you name backup people to handle things). The person perceived as the most responsible may already have too much on their plate, or they may be averse to leading conversations with siblings, cousins or others (especially if the family practice is to avoid such conversations altogether). Leaving one of your beneficiaries to handle everything could trigger conflict where it didn’t exist previously, and the best way to prevent this is to ensure everyone is aware of and agrees on the plan.

You don’t consider your individual family circumstances. Communication and clarity are even more important for blended families, parents with adult children from a previous marriage or families with children who have special needs. These circumstances may require different planning, both to ensure your intended beneficiaries receive what you wish to leave to them, and to ensure any vulnerable family members are properly protected. If you are naming a conservator or guardian, it is absolutely critical that person is aware and accepts that responsibility.

Your expectations may simply be unrealistic. While you might have specific wishes in mind for your family, that vision may or may not be shared by future generations. Here’s but one example: a parent wishes to maintain a vacation home in the family and proceeds with the expectation that future generations will continue to use the home and enjoy large family gatherings together. It might sound nice, but not everyone has the same idea of where or how they want to vacation. They may not even want the burden of maintaining such an asset. This applies to succession of family-owned businesses, which come with major responsibilities. Assuming that the future generations will take over a business and succeed you as CEO may be unrealistic. Instead, communicating your wishes early on is critical, can lead to productive conservations, and can help you craft a better estate plan that reflects the realities of your family’s own wishes and desires — so long as you are open to listening and receiving feedback.

Some ways to avoid these estate planning pitfalls

Be open about your wishes – within reason. Your estate plan is personal, and communicating your plan doesn’t require sharing every detail, all at once. Just as discussing your estate plan can be uncomfortable for you, it can also be uncomfortable for your children and grandchildren, and a better approach may be to begin slowly, and engage over a series of conversations about the relevant topics.

Formal conversations and/or training of the next generation are important. This is particularly true for beneficiaries who will be tasked with specific roles, such as serving as your executor, running a business or managing an asset into the future, or care-taking responsibilities of a surviving spouse or an adult child with special needs.

Someone may need to know everything. This can be a spouse, lawyer, or accountant – but someone needs to be poised to act in case of emergency. One way to streamline the information is to create a master document containing an inventory of your entire balance sheet, including account numbers and locations, and ensuring your designated person knows where to access it. Many estate planning lawyers will keep such a list on file for their clients, preserving the information but also the safety and security of it.

Trust your family. For some, there is perhaps no better way to cultivate trust than through practiced communication. If there are issues or conflicts requiring resolution, knowing about them can be useful and can help guide you in your thinking about whether beneficiaries should receive shared or separate inheritances. In other cases, fears about your children’s reactions may be overblown, and your children or grandchildren could surprise you. Either way, engaging in the conversation may be better than not, and ultimately, estate planning demands trusting that those you name, whether family or professionals, will handle your affairs as you wish them to be handled.

There is no time like today to start

Not sure how to begin communicating your future plans? A financial advisor, lawyer or accountant can help you lean into the conversation and develop tools and tips for engaging the whole family. J.P. Morgan’s Wealth Planning & Advice team can also be a trusted resource. Working with an experienced team will help alleviate the stress, equip you for challenging conversations and ensure your estate plan reflects your wishes and your family dynamics.

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