Only about 35% of families remain “traditional.” Modern families need modern planning!
The 45th Annual Notre Dame Tax & Estate Planning Institute in South Bend, IN brings together some of the top estate planners from around the country to lecture at a two day conference. This is the 3nd in a series of articles elaborating on some of the many planning nuggets gleaned from the conference that might have important planning implications to readers. Much of estate planning (techniques, forms, literature and more) presumes a “Cleaver-like” family unit. Remember the 60’s sitcom with Ward Cleaver, the dad, June Cleaver the mom, and kids Wally and the Beav. That was supposed to be the Archetype American family. Family decision making was historically simple and patriarchal. No longer.
This might come as a shocker, but the Cleavers are no longer the typical American family. In fact, today only about 35% of American families are comprised of a traditional heterosexual married could with children. So the Cleaver-like families are well less than ½ of the American family units (and shrinking). And even that doesn’t tell the whole story. 8.4% of married couples are inter-racial. 39% of American’s who have married since 2010 have a spouse who is in a different religious group. So that 35% of traditional family units is a lot less Cleaver-like then that stat suggests. And all of this is part of a trend of dramatic change in the family unit. What does this mean to estate planning? Everything. The planning and documents you might need are not your moma’s planning and documents.
What does an American family look like today? Apart from 35% that are called “traditional” (but many of which are not “traditionally-traditional”), 31% are childless families and 34% are considered “modern” families. This can include a myriad of non-Cleaver like characteristics like:
· Blended families.
· Divorced families.
· Cohabiting couples.
· Same sex couples
· Intentionally single parents.
· Single persons.
· Polyamory relationships.
· “Families” with non-marital children.
All these non-traditional family types have grown substantially over the years. As one example, the number of unmarried cohabiting couples has grown from 6 million in 1996, to 19.1 million in 2018. The trend of growing diversity and complexity in American family units is clear and growing.
So the non-traditional family unit is the clear majority and the norm in estate planning. What do you need to do differently? Start by not using historical presumptions, historic planning patterns, and traditional documents. Some of the nuances to consider might include, for starters, the following. Could non-marital and/or adopted children unintentionally be excluded from your estate plan? Don’t assume that is off the table because it is clearly not your wishes. The definitions used in legal documents for “issue” or descendants must be carefully considered. Are the definitions sufficient to encompass everyone you want treated as a beneficiary? Is the definition so broad that it might include people you do not want to be beneficiaries? Are you leaving people who believe that they should be beneficiaries excluded? In the Cleaver world saying descendants worked just fine as Ward and June were in their original marriage and June gave birth to their two children. Now, June and Ward might be on a second or later marriage, with children from prior marriages, their current marriage, children they adopted and children born from artificial reproductive technologies. Clear delineations of who is to be included have become much more important.
Blended families are common and growing. Over 50% of US families are remarried or re-coupled. Biological and step-children raise issues. If they have all grown up in the wealth and make inferences based on lifestyle. How are your children versus your spouse’s children to be treated for inheritance purposes? What if you’re very wealthy and your spouse is not. Your step-children might become accustomed to a very comfortable lifestyle while living in your home, but that lifestyle may be unsustainable later. If they are not part of your estate plan that lifestyle might never be sustainable. Have the step-children been prepared for the potentially dramatic change in lifestyle? If your children and step-children have grown close how will your children feel at the dramatic difference in how each group is treated financially? Might it offend their sense of fairness or decency?
There has been a significant growth in the number of family units comprised of unmarried partners. The state laws that protect married couples may not apply to an unmarried couple. This might make it critically important that they have attorneys prepare a living together agreement to delineate their rights in the relationship, and if the relationship ends, or if either dies. Many unmarried couples don’t realize the risks they face. For example if partner 1 becomes ill or disabled, partner 2 might find himself dealing with someone incredibly antagonistic on mixed financial matters. For example, partner 1 may have named her brother as agent under an old power of attorney (a legal form in which you designated someone to handle financial matters if you can’t).
If a family member is transgender the traditional legal documents may refer to that person using pronouns or descriptive terms that are offensive. But worse, is it possible that the transgender-family member could lose status as a beneficiary if name/pronouns don’t match? The definitions of “issue” in legal documents must be carefully considered. How does family member identify and want to be referred to? Explain to advisers what pronoun you would like to be referred to by.
Modern families might require a different type of meeting format and different types of communication. How should family members and advisers elicit or share delicate information? How should family meetings be handled? Whatever has been done historically for traditional families, may not be practical. Might it be better for certain family members to meet with the professional advisers individually? Might small group meetings be more productive and less antagonistic then large meetings of the entire family? Who do you and other family members feel most comfortable speaking to? What about involving family psychologist? The advisers hired by a modern family must be good listeners and pick up on what the modern family needs and wants. Often important wishes do not fit into the norms, forms and questionnaires, that many estate planners still use.
Modern trust and estate planning and drafting tends to be much more flexible than traditional documents. But for the modern family, the flexibility which modern drafting techniques can afford may be particularly important. While there are countless ways to infuse flexibility into planning, even into irrevocable trusts, consider using some or all of the following in variations that are appropriate for your family and goals:
· Powers of appointment are rights given to designated people to appoint or direct were assets, e.g. the principal in a trust, are to pass. This can be a valuable tool to provide flexibility as circumstances change. But it can also become that proverbial two-edged sword. If not properly crafted and limited the unintended exercise of a power of appointment could undermine your entire plan.
· Trust protectors are a recent addition to the pantheon of trustees and other fiduciaries and power holders named in estate planning documents. A trust protector might be given certain high level powers such as the right to remove and replace the trustee, change the situs for the governing law and administration of the trust, etc. This too can provide a critical check and balance on the trustees powers, and flexibility to deal with changing circumstances.
· Flexible distribution standards can be used. A traditional trust might call for the distribution of income to one person (called the current or income beneficiary) and then on the death of that person, the remainder would be distributed (called the remainder beneficiary). That traditional distribution model is course and inflexible. It might also create greater risk for trust assets in the event of a lawsuit or divorce. Perhaps a better approach is to name an institutional trustee and give them discretionary distribution authority.
· Decanting provisions are more commonly included in trust documents. These permit the trustee, regardless of the terms of state law, to decant (merge) the trust into a new trust with perhaps different administrative provisions. That can be a valuable tool to fix scrivener errors, modernize the trust for provisions or issues that were not known when the trust was created, and more. All of this flexibility may be invaluable for the modern family.
· Division and merger provisions can facilitate the trustee combining trusts for the same beneficiary or family unit to save professional fees and reduce complexity.
· Holding personal use assets, such as a vacation home or art collection, has become more common. In a modern family having a trust hold these assets may provide the means to let the defined family members benefit as specified. In a traditional family unit it may have been simpler to distribute such assets to the heirs assuming they would handle it well or get along (not that such a positive result occurred as often as anticipated). For the modern family the input of an independent trustee and trust terms that define rights, might all serve to enhance everyone’s experience, better accomplish your goals and maintain the peace.
· Consider giving a person the power to add beneficiaries. This could be important if the universe of those who will benefit is not clear.
Modern families may benefit from broader non-traditional thinking, newer and more flexible documents, and different approaches to the entire process including meetings and communications.