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Posted On: JULY 2024

How much should you tell your loved ones about your estate plan?

After you’ve created your estate plan, it’s important to consider how much information you should disclose to your loved ones about its details.What you share depends in part on your particular circumstances and your relationship with family members. Here are factors to consider.

Advantages of sharing

Sharing the details of your estate plan provides many benefits, including:

Explaining your wishes. Most people, when they design their estate plans, want to treat all their loved ones fairly. But “fair” doesn’t necessarily mean “equal.” The problem is that your beneficiaries may not understand that without an explanation.

Suppose, for example, that you have adult children from a previous marriage and minor children from your second marriage. Treating both sets of children equally may not be fair, especially if the adult children are financially independent and the younger children face significant living and educational expenses. It may make sense to leave more of your wealth to your younger children, but explaining your reasoning upfront can go a long way toward avoiding hurt feelings or disputes.

Obtaining feedback. Sharing your plans with loved ones gives them an opportunity to ask questions and provide feedback. If family members feel that they’re being treated unfairly, you may wish to discuss alternatives that better meet their needs while still satisfying your estateplanning objectives. But even if you don’t change anything, providing loved ones with an opportunity to be heard can increase the chances that everyone will accept your plan.Soliciting feedback may also reveal holes in your estate plan, such as potential beneficiaries who were inadvertently omitted.

Streamlining estate administration. Sharing details of your plan with your executor, trustees of any trusts and any holders of powers of attorney will enable them to act quickly and efficiently when the time comes. This is particularly important for persons you’ve designated to make health care decisions or handle your financial affairs in the event you become incapacitated.

Policing your trust. Disclosing the details of a trust to its beneficiaries allows them to monitor the trustee’s activities and ensure that the trustee is acting in their best interests. If no one is “policing” the trust, there’s a risk that mismanagement of the trust assets won’t be discovered until it’s too late. In some states, it may be possible to appoint a third-party surrogate to police the trust.

Disadvantages of sharing

There may be some disadvantages to sharing the details of your plan, including:

Loss of privacy. Disclosure may not be desirable if you wish to maintain the confidentiality of your financial affairs and estateplanning arrangements.

Strained relationships. Some loved ones may be disappointed when they learn the details of your estate plan, which can lead to strained relationships. Keeping your plans to yourself allows you to avoid these uncomfortable situations. On the other hand, it also deprives you of an opportunity to resolve such conflicts during your lifetime.

Encouragement of irresponsible behavior. Some affluent parents worry that the promise of financial independence may provide their children with a disincentive to behave in a financially responsible manner, pursue higher education and gainful employment, and generally lead a productive life. Rather than keeping your children’s inheritance a secret, however, a better approach may be to use your estate plan to encourage desirable behavior. (See “Accentuate the positive with an incentive trust” below.)

What does state law require?

As you think about how much you wish to disclose to your loved ones about your estate plan, be sure to consider applicable state law. The rules about what a trustee must disclose to beneficiaries about the terms of the trust vary from state to state. Some states permit so-called “quiet trusts,” also known as “silent trusts,” which make it possible to keep the trust a secret from your loved ones.

Other states require trustees to inform the beneficiaries of the existence and terms of the trust, often when they reach a certain age. For example, trustees may be required to provide beneficiaries with a copy of the trust and an annual accounting of its assets and financial activities. However, many states allow you to place limits on the information provided to beneficiaries.

Weigh the pros and cons

We can help you weigh the pros and cons of sharing your plans with your loved ones. We can also help you develop strategies for accomplishing your estateplanning objectives while maintaining family harmony.

Sidebar: Accentuate the positive with an incentive trust

One reason that people may be reluctant to share their estate plans with their loved ones is a concern that it will encourage irresponsible behavior. But even if you keep the details of your plan a secret, actually keeping your wealth secret may be difficult if not impossible. Since your loved ones will undoubtedly expect to share in that wealth one day, keeping your plans under wraps will likely do little to discourage irresponsible behavior.

A better approach may be to create an incentive trust, which provides positive reinforcement that encourages desirable behavior. These trusts may, for example, condition distributions on behavior you wish to encourage, such as obtaining a college or graduate degree, maintaining gainful employment, pursuing worthy volunteer activities or avoiding alcohol abuse.

Alternatively, to avoid a complex set of rules that may not cover every situation, you might consider a principle trust. This trust type outlines general principles for distributing funds to beneficiaries and gives the trustee broad discretion to reward responsible behavior on a case-by-case basis.

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