I am shocked that music legend Prince died in 2016 without a will. This resulted in legal and administrative expenses of over $85 million out of an estate valued at around $156 million and a massive tax bill. Wow!
And while I don’t feel badly for his heirs – who still got millions – I wonder why Prince did this. I expect one reason was that deciding what to do with your assets and communicating about them can be incredibly difficult. Of course, many procrastinate on tough matters like these.
Don’t. Instead, be strategic about how you address estate planning negotiations. In Part One last week, I recommended that parties start by 1) identifying personal goals and principles, and 2) developing a mutually acceptable process. Here are three more.
3. Explore your heirs’ underlying interests
Don’t assume you know what your kids want and need and why and how much, even if they’ve previously made offhand comments to you about them. One might have a cash-flow problem they kept under wraps. Another might be emotionally attached to your classic car. Another might covet family time at your cabin.
View this as an opportunity to explore your kids’ interests in the elements of your estate. And don’t just do this on the surface. Deeply probe and explore their priorities and why they want them. Maybe even ask each to write this down so you can compare their priorities.
And don’t think they can just easily work this out after you pass. Sibling rivalry and ego issues can rear their ugly heads at any point. It’s almost always better for you to manage and decide who gets what than to let them duke it out.
Also keep your ears peeled for expand-the-pie opportunities. Let’s say you have two highly competitive kids who aren’t close. And you learn Child 1 loves your two antique chess boards because it reminds her of playing chess with you growing up. And Child 2 really appreciates your watch collection as you gave him a watch for his 16th birthday. Assume both are difficult to value and neither kid cares much about the other asset.
If you didn’t ascertain their true interests, you might give each a chess board and half the watches.
This would be a missed opportunity for you and for them.
4. Liberally rely on objective criteria and benchmarks
Let’s say you want your three kids to inherit equal shares of your estate, which includes:
-
a 3-bedroom house in Minneapolis (which no one wants),
-
a cabin in northern Minnesota (which only your Minnesota-based son wants),
-
a small share in a privately-held partnership that owns a shopping center (which your daughter wants),
-
some jewelry (which two kids want), and
-
securities worth $100,000 (which everyone wants).
How can you figure this out? It’s complicated! But your starting point – after going through my above suggestions – should be to get an independent objective assessment of the current market value of everything.
In other words, apply my Third Golden Rule of Negotiation – Employ “Fair” Objective Criteria and find benchmarks like market value, precedent, costs, expert opinions, etc., to place a monetary value on each.
Maybe hire an experienced real estate agent or appraiser to value the house and cabin. Get an expert to appraise the jewelry. Ask the managing partner of the shopping center investment to estimate its worth, understanding that private assets can be illiquid and difficult to value. Hire a tax expert to advise on how to efficiently maximize the timing of distributions and minimize taxes.
Then divide the total amount by three, figuring each sibling should get assets totaling about one-third of your estate.
Consider also using a process everyone considers fair to divvy up smaller but harder-to-value items, like personal furnishings. Possibly draw straws to determine who picks when and then take turns until everything is gone.
5. Consider a professional mediator or specially-trained lawyer
Finally, it may be worth your time and money to hire a specially-trained mediator with subject matter expertise to independently manage this often emotionally fraught process. Some trusts and estates lawyers have this skill, but not all. Do your due diligence.
Prince had the money to hire the best of the best here. It would have saved his estate tens of millions of dollars.
Latz’s Lesson: Probe your heirs’ interests. Rely on objective criteria. And consider professional mediators or lawyers. All will help you in this challenging intrafamily negotiation.
* Marty Latz is the founder of Latz Negotiation, a national negotiation training and consulting company that helps individuals and organizations achieve better results with best practices based on the experts’ research. He can be reached at 480.951.3222 or Marty@LatzNegotiation.com.