Having Those Difficult Conversations

Photography by Wes Battoclette

John D. Dovich and Dean R. Johns of John D. Dovich & Associates, LLC recently met with Daniel J. Hoffheimer and Aaron H. Kaplan of Taft Stettinius & Hollister LLP to talk about unique issues surrounding estate planning for second marriages and blended families, as well as succession activity involving family owned businesses. As the conversation developed, everyone soon realized the key to success is open lines of communication among all parties involved in creating estate plans.


John D. Dovich: What are some unique issues you’ve encountered with clients who have been married multiple times and have blended families?  

Daniel J. Hoffheimer: When we have our initial meetings, we ask our clients to talk about where they want their property and assets to go, in terms of inheritances.  We have clients tell us they want their wealth to go to their side of the family and their children, and not to the families of their spouses or the stepchildren. But clients may also want to take care of a new spouse. That’s where trusts come into effect. Trusts protect what the spouses want in specific situations, as well as half-siblings who don’t share the same parents.  

Aaron H. Kaplan: This is where things get tricky because of family dynamics. If it’s a case of all children inheriting equally, that’s simple. But if you have a scenario where you add in the children from one spouse and not another, or you start adding in the second spouse, that’s where the conflicts can arise. For example, is it fair for the children to wait for the stepparent to die in order for them to inherit from their own parent, especially when they are adult children and may be in need of the money? This is where we step in to help resolve conflicts. 


Dean R. Johns: Do clients have these arrangements mapped out before they meet with you or do you feel obligated to discuss various scenarios that could impact their original plans? 

DH: Often clients believe they have it figured out, but they’ve figured it wrong. Many times people don’t realize how complicated estate planning can be. However, I do not think I’ve ever seen a complex case where a good, well-crafted trust will not accommodate any situation. Trusts are flexible and ingenious devices.


JD: How do you advise clients in a blended family where the majority of the wealth is from a business one of the parents created?  

DH: I’m a big fan of premarital agreements but it’s often difficult to get folks to sign these agreements. There have been a number of agreements I’ve drafted that were never signed by either party. Or sometimes, people procrastinate because “They want to do it right and have the perfect plan.” There is no such thing. In fact, we tell our clients the same thing Socrates once said: “Don’t let perfect be the enemy of the good.” 

We start from the presumption that you never leave money outright to kids. These assets should always be in a trust. At that point, we ask the parents how they want to leave assets to their families. We explain to them the need to protect their assets from predators, potential divorces, splits, etc. We ask if they want to help fund education for their grandkids, or maybe give a spurt of principal to the kids every five years or so. A trust can allow this to take place any way the family wants it to happen.  


JD: What happens when there’s friction among the beneficiaries of
the trust?   

AK: For second marriages and/or blended families, adding a corporate trustee might alleviate family friction. Another way is to add a provision for a trust distribution advisor to work with the corporate trustee for any distributions. There’s a lot you can do ahead of time to ward off bad feelings among beneficiaries, and if you do it up front, the participants in the estate plan won’t have a reason to question how the assets are divided.


JD: Despite best intentions, I’m sure there are instances where clients have made bad decisions with their estate plans. Can you share a couple of “watch outs” when developing these plans?    

AK: There are times when clients will say, “We don’t need to worry about any of the trust stuff. My kids are fine and I’m leaving everything to them.” That leads to problems, especially if a parent dies without a plan in place and the kids inherit a huge life insurance settlement. If they don’t understand money management, kids might squander the settlement quickly. Trusts, and appropriate trustees, will protect survivors from these situations.

DH: It’s important to re-evaluate your plans whenever something changes in your life. What seemed logical years ago no longer makes sense. Another thing that can trip someone up is if they have a child with special needs and they leave them an inheritance – this can disqualify the child from receiving Medicaid benefits.  

AK: Sometimes clients have plans that were well done for the time in which they were prepared … that language might not work the same under current law. Sometimes people will leave exact dollar figures in their plan and property to someone else – where at the time, both were equal figures, but the property may have tripled in value. Periodically re-evaluating estate plans will help avoid these situations.


DJ: How do you handle equalizing the distribution of assets between family members when creating estate plans and trusts?   

DH: Let’s say we have a family business that will pass to one child who also happens to manage the business. There’s another child who is not involved and has no plans to be involved. The question becomes, what other assets can equalize this situation? Life insurance is a great way to equalize these situations.  

AK: Also, what is considered fair in value may not be truly equitable when you consider the risk involved. For example, one child receiving $1 million of business value is completely different than another child receiving $1 million cash.


JD: How would you summarize a cautionary note for people with blended families looking to create or perhaps re-evaluate a current
estate plan?

DH: My advice is to find a good set of advisors, including an attorney experienced in estate planning. There is no situation that cannot be addressed with proper trust planning. And lastly, I always say, “Don’t put your trust in money. Put your money in a trust.” 

JD: I think many people may be intimidated by the prospect of creating an estate plan. You’ve shown us the key to successfully navigating this part of life is finding a good advisory team to help you. And once you do find the right people, having these difficult conversations won’t be quite so difficult after all.   

“Investment advisory services offered by John D. Dovich & Associates, LLC, an SEC Registered Investment Adviser. All opinions included in this article constitute the firm’s judgment as of the date of this article and are subject to change without notice. This article is not intended as an offer or solicitation with respect to the purchase or sale of any security. © Copyright February 2016, John D. Dovich & Associates, LLC. All rights reserved.”

John D. Dovich & Associates is located at 625 Eden Park Drive, Suite 310, Cincinnati, OH 45202. For more information, call 513.579.9400 or visit www.jdovich.com.