Retirement

Is your estate plan unintentionally playing favorites?

Be sure to consider the emotional as well as financial repercussions of your legacy


Loving parents with the best of intentions can sometimes leave their children at odds with each other simply because they didn’t fully understand the effect their estate planning decisions might have. Take the case of Margaret and her second husband, Richard.  

Margaret founded a successful architectural firm and had twins with her first husband, David. Sadly, David died when the twins were toddlers. 

A few years later, Margaret remarried. She and her second husband, Richard, had one child, Annie. The three children, close in age, grew up as one family. 

When Margaret wrote her will, she created a family trust, funding it with her “U.S. estate tax exclusion amount.”1  This trust would provide for Richard and the three children. She left the remainder of her estate to Richard outright. Margaret assumed that Richard would leave his estate equally to what she thought of as “their” children: the twins and Annie. 

That is not what happened.   

Margaret died when all three children were in their 30s. Richard lived for another 20 years. When he died, he left his entire estate to his biological child, Annie. 

Richard’s thinking: The family trust that Margaret had created provided for the twins, both of whom were established executives. His estate should go to Annie because, although she also was a beneficiary of the family trust, she was a struggling artist. 

Legally, Richard was within his rights. But his decision created family conflict.

The twins were unhappy that their deceased mother had failed to ensure her legacy benefited all of her children equally. They were also hurt that their stepfather distinguished between them and their half-sister. The twins’ relationship with Annie was never quite the same. 

Unfortunately, stories like this play out all too often. Fortunately, they can be avoided.

Preventative measures

  1. Be intentional. Think through where and how your money will flow when first one parent, and then the other, passes.  Will it go to the right people in the right amounts? Are you accounting for the emotional and financial considerations?
  2. Make no assumptions. You and your spouse may or may not have the same intent for your wealth. It is important to speak about what you want, long before decisions are made. If you think your wishes may differ from your spouse’s, consider using a marital trust rather than making an outright gift. Income from a marital trust would be paid to your spouse for as long as your spouse lives. You could define how much principal your spouse would be able to access. You could also say who the ultimate beneficiaries would be after your spouse died.
  3. Communicate your intentions ahead of time, if appropriate. Consider telling your heirs what you intend to happen. Most families do not like surprises.      
  4. Seek expert advice. Your J.P. Morgan advisor can work with you and your estate planning lawyer to help you identify your intentions, map how your assets will flow, and have your plan take advantage of all applicable tax laws. 
  5. Review and potentially revise your will regularly. We recommend checking your plan at least once every five years, plus whenever your family experiences a major life event—such as a marriage, the birth of a child, a divorce or a change in wealth.

We can help

Your J.P. Morgan representative is available to work with you and your estate planning lawyer to help you and your spouse make sure what happens to your estate is what you truly want for all your family members.  

 

1 The U.S. estate tax exclusion amount is the amount a U.S. taxpayer can gift without incurring U.S. estate taxes. That amount, $11.4 million in 2019, is adjusted annually for inflation. Some states also impose state estate taxes, and their exclusion amounts may differ from the U.S. exclusion amount. 

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