An estate plan for Cinderella's parents

I've always thought that fairy tales in general are more suited to adults than the children to whom we recite them. The young and the vulnerable don't do well in fairy tales, being exposed to and abused by everything from man-eating giants to wolves in sheep's clothing to wicked step-mothers. I wouldn't think they'd be very comforting stories for kids, though I have to admit my own daughter loved Cinderella when she was young.

In an entertaining article, American lawyer Ahmed Shaikh describes how many of these alarming fairy tales, particularly the story of Cinderella, were rooted in real life situations such as a parent passing away. Click here to read this very enjoyable article, and think about what you should do to prevent your own children from living Cinderella's nightmare.

How to accept money from your relatives

This article in the Wall Street Journal talks about the family politics, legalities and other considerations that come into play when you accept a loan or a gift from family members. I think the author hit the nail right on the head.

One thing that I would add from an estate planning perspective is that if you are accepting money from your parents, ask them to include a statement in their Will about whether or not they expect it to be paid back. And if you're the parent lending money to a child, include this in your own will.

Including a statement doesn't mean that you must forgive the loan, in fact it can be the opposite if that is your wish. The purpose of including it is to avoid that huge debate that erupts when a parent passes away and the kids find out that one has had money from the parent. A brief sentence in the will (that doesn't even have to name the amount of money) is enough to head off the dispute.

Click here to read the article.

Can I leave my child out of my Will?

When planning their Wills, parents usually put quite a bit of thought into what they want to leave to their children. Occasionally a parent doesn't want to leave anything to a particular child. There are plenty of good reasons for this. It could be because the parent and child are estranged. It could be because the parent gave the child quite a bit of financial help while the parent was alive. It could be because the parent really wants to leave it to someone else (either a person or a charity). Perhaps the parents have left an insurance policy or other property directly to that child.

Whether or not a parent would be successful in leaving a child out of the Will depends in large part on whether the child is either a minor, or an adult child who can't earn a living because of a handicap. Children who fall into those two categories are considered to be financial dependants of the parent and can't be left out of the Will without a significant risk that the Will would be contested.

Because adult children who are not handicapped do not have an automatic right to contest the parent's Will to get a larger share, the parent does not legally have to leave the child anything. This is an area where real life isn't as simple as the legal rules. A parent who leaves a child out of a Will is going against the expectations of the child and likely of everyone else. A child who is left out of the Will generally feels punished and wonders what he or she did to upset Mom or Dad.

Plenty of people think it's the law that they must leave their estates to their children and that they must treat all children equally in their Wills, but it isn't. It is, however, a strong cultural tradition that children inherit from parents, so if the parent plans to do something else with the estate, he or she is working against a very strong tradition and an even stronger expectation.

Whenever a client of mine wants to do something in a Will which may not seem logical or obvious to other people, I include a clause that briefly explains the person's reasons for taking this route. For example, if a parent were to leave a child out of the Will, the Will would contain a sentence or two giving the facts that the parent won't be around to give in person. It could say that the parties are estranged, or that the child has already been supported by joint property given to him or her. The purpose of including a clause like this is to make it clear to anyone reading the Will that the testator had put thought into the decision, knew that he or she had a child who expected to inherit, and that he or she made a different choice anyway.

Sometimes Wills are attacked on the basis that the testator (in this case the parent) didn't "know what he or she was doing". Having a rational explanation included goes a long way towards refuting that kind of claim.

If you are thinking of leaving one or more of your children out of your Will, please talk to an estate-planning lawyer about this. If you want to do this because of an ongoing problem between you and your child, also talk to the lawyer about how you will be able to protect yourself financially if you should lose mental capacity.

Should my parents be my executors?

The answer to the question of whether your parents should be your executors will partly depend on your age and your parents' ages. If you're 25 and your parents are about 50, then appointing them as your executors could work for the immediate future. The problem is though, that if you don't look at your Will again for many years, then you might suddenly realize that the choice you made back then is no longer as suitable.

As a general rule, you should not have an executor who is much older than you are. An entire generation older is problematic.

With an executor who is getting up there in years, you run a couple of risks. In the natural course of events, you should expect someone much older than you to pass away before you do. If your executor is a generation older than you, he or she could pass away while administering your estate. If this happens, then your executor's executor becomes yours. This might not even be someone you know.

The other risk is that the executor might lose mental capacity while administering your estate. This could lead to losses and delays while someone else sorts things out.

Most parents will not refuse to be an executor when one of their children asks them, because they feel the child needs them to fill this important role. But in my view, the children should consider the heavy load carried by an executor and think about whether it's really fair to ask that of a parent who is getting on in years.

Clients have told me that they've appointed their parents because they really didn't have anyone else in their lives at the time that they trusted to deal with their assets. If this is the case, consider using a trust company.

Executors collecting debts of the deceased

One of the many jobs that executors must do on the estate of someone who is deceased, is figure out what debts are owed to the deceaased, and then collect them. I would rank this among the least enjoyable of executor's tasks (not that most of them are a barrel of monkeys, mind you).

Debts owed to the deceased can range from large (e.g. an insurance settlement from a car accident) to very small (e.g. a refund from the local newspaper once the subscription is cancelled).

The general rule is that the executor must collect all legally enforceable debts. Most debts owed to a person continue to be owed after that person passes away. This is why the executor, who represents the deceased, is the one who has to collect them.

There are a couple of ways in which the Will itself can help the executor:

One of the most common debts on an estate is a loan to one of the children that the deceased parent made during his or her lifetime. Ideally, the deceased parent has given the executor some direction in the Will about whether to collect the debt. If nothing has been said, then the executor is obligated to collect that loan. The executor doesn't have the legal authority to forgive that loan if the Will doesn't allow for that. This is a really difficult thing for the executor to deal with, especially if the executor and the beneficiary who owes the money are siblings.

A way of dealing with that debt, rather than actually collecting money from the beneficiary, is to reduce the amount of money the beneficiary is going to inherit.

If you are a parent who has lent money to a child, or a child whose parent has lent money, make sure the repayment (or not) of the loan is mentioned in the parent's Will. This may certainly help to cut down on disputes.

Another place where the Will itself can be very helpful to the executor is the section of the Will that contains powers or authorities for the executor. In some Wills, there is a power to settle this kind of matter as the executor sees fit.

This clause could be helpful where the amount of the debt owed to the deceased is so small that it will actually cost more time and money to collect it than it is worth. The existence of a small debt puts the executor between a rock and a hard place, because he or she is obligated to collect all debts owing, including the small ones. However, if the power referred to is included in the Will, this will allow the executor to decide that a given debt is just not worth it to collect.

All debts that are owed to the deceased, once collected, should be put into the executor's estate bank account that every executor opens up once he or she starts working on the estate. This keeps the estate's money separate from the executor's money and keeps the records straight.

Naming your parents as your executors

I'm often asked who is the "right" person to name as someone's executor, and the best answer I can give is that it depends on who is available in that person's life who is able and willing to take on the job.

Married people and those in common law relationships usually name each other as their executor. Even when they do, they will be asked to name an alternate who will act as executor when both of them have passed away. Who should a single person appoint? Friends, siblings, a trust company, their parents?

As a general rule, you should appoint someone of your generation or younger to be your executor. There are good reasons for this.

In the natural course of events, your parents, being a generation older than you, should pass away before you do. That being the case, it doesn't really make sense to ask them to do a task that won't be required until you pass away.

Another reason for not appointing someone a generation older than you as your executor is the possibility that your executor could lose mental capacity. What if, at the time you pass away, your parent is living in long-term care and can't look after your estate? Who will be in charge then?

Sometimes a parent is appointed "for now" until you are able to think of a better alternative. While this can be a short-term solution, it does mean that you must remember to change your Will at some time in the future. If your plans become derailed because you become ill or injured to the extent that your mental capacity is diminished, you may not get a chance to change it.

When planning your Will, take the time to carefully think over your choice of executor, and discuss it with your estate-planning lawyer. He or she may have ideas you hadn't thought of.