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The Partnership charter

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Mediation Retreats: A Pre-Estate-Planning Strategy

Private Wealth Management 2004

By David Gage and John Gromala
Private Wealth Management

The estate-planning process can be an effective and satisfying experience for all involved and is less likely to result in legal battles if advisors would recommend a preliminary step for the family

The essence of what is transpiring as wealth is passed from one generation to the next often gets lost in the estate planning process. That essence is a gift from parents to children and their children’s children. It is the last note of a family-long song and something to be celebrated – but often it is not. It is something that begs to be discussed openly – but rarely is. It is often over-taken by what has become a specialised field in which tax and financial experts fine-tune plans to minimise taxes and maximise economic gain.

The problems with existing methods of estate planning are more serious than just short-circuiting an important family transition. Although parents can spend hours and thousands of dollars conferring with attorneys and advisors to draw up carefully crafted estate plans, some of these plans go terribly awry. Families battle each other with allegations, claims and counterclaims that can drag on for years, and drag in their attorneys and other advisors with malpractice suits. What should be a positive family transition devolves into a family horror story.

Here, we discuss why the personal and family aspects of such an important generational transition have been so muted that they are barely audible. We also describe how, with a few modifications, the estate-planning process can still maximise economic advantages while creating a safer and more rewarding experience for families and their advisors.

The crux of the problem

Having mediated trust and will contests for some years, we have concluded that the crux of these problems stems from a lack of communication and miscommunication among family members, and between family members and their advisors. People do not typically explain their thinking or describe their feelings particularly well and have trouble listening to one another. They then make erroneous assumptions. The result is a lack of understanding and appreciation for what will happen, and why.

Parents need encouragement to have serious conversations between themselves, and with their adult children about dividing property, and their own dying. The conversation that begins, “I want you to know that I’m going to leave some money for you when I die …” is understandably difficult. The responsibility for why these conversations fail to occur rests in part with the culture of estate planning, which suggests that parents may be better off keeping their intentions to themselves and that talking openly might stir things up and diminish the parents’ prerogatives.

The estate-planning culture is influenced by conflict-of-interest concerns. Many wealthy parents have not had candid conversations with each other or with their adult children about their own or their children’s needs and interests.

The likelihood that couples are truly thinking the same way is doubtful, so minimising, denying, or failing to explore differences between spouses can have disastrous consequences for couples, their families and their advisors. When couples are only seen together by their planners, they may never express their true thoughts, feelings, or apprehensions because their only opportunity to speak is in front of their spouse.

Meeting with each parent separately can raise the level of candour and the likelihood of hearing differences of opinions, but also raises the likelihood of a conflict of interest for the attorney. Attempting to avoid a conflict by advising clients that the substance of their discussions will be shared defeats the purpose of separate conferences.

The suggestion of separate counsel can destroy a collaborative experience by generating an unfortunate aura of an adversarial relationship. Likewise, asking a couple to sign a “consent to joint representation” will satisfy the attorney’s ethical requirements. However, it can foster feelings of being adversaries, and may cause a couple to postpone or abort the estate-planning process.

The traditional approach to estate planning may work well for some families, but may fail to open up sufficient communication to produce satisfying results in others.

Mediation creates a clearer picture

Depending on the size and complexity of a family’s estate, planners may employ mediators to assist the parents in sorting through issues and clarifying their needs and interests, as well as the needs and interests of their adult children.

The expertise of mediators is in fostering an open, constructive dialog of difficult subjects and building a collaborative spirit (especially when people feel at odds with one another). They help people arrive at mutual understandings.

Introducing mediation into the estate planning process gives estate planners a way to handle ethical concerns and feel confident that the information they receive represents their clients’ real wishes.

The mediators are neutral and work for the common good of everyone involved. They work for the entire family, while recognising the different roles, authority and positions of the various family members, and that it is the parents’ prerogative to do whatever they wish with their assets.

Mediators help parents work toward making decisions that will leave no one in the family feeling cheated or resentful about the final plan.

Parents, their estate planners and the mediators decide whom to include in the process to achieve the greatest buy-in and the least chance of having the final plan contested for any reason. Often that means engaging all adult family members in one way or another.

When the participants are agreed upon, the mediators meet with everyone – together and separately – to ensure that everyone’s concerns are known and dealt with, hidden agendas are uncovered and the process moves along swiftly.

Pre-estate-planning retreats

A pre-estate-planning retreat usually takes place over a long weekend. It is a structured yet informal and flexible process that mediators actively direct and guide. The discussions range from emotional, interpersonal dynamics to hard, cold dollars and cents.

Although mediators do not give advice, they must understand the basic issues involved in estate planning and be experts in family dynamics to keep things moving constructively. To achieve this end in this brief time, a lawyer and a family therapist will work in a tandem team.

Mediators never tell people what they should do, but do encourage, coax and motivate people to collaborate and reach understandings that have the greatest potential for generating a healthy environment and loving spirit around the family transition. The confidential nature of the communication (nothing can be used later in any adversarial proceedings) and the structure of the sessions help people open up with the mediators and one another.

In separate caucus sessions with the mediators, family members can verbalise their worst fears and suspicions, their most angry feelings, and their wildest ideas. They understand that it is part of the mediator’s job to help them sort through what is real and what is not, and what is productive and what is not.

Involving adult children

By engaging adult children in these discussions, parents create an environment of respect, which gives them more ability to influence how responsibly their children will handle their inheritances. Leaving them out – keeping them in the dark – can have adverse effects because it may hinder the ability of adult children to plan their careers, their investments, and their own children’s futures. Furthermore, it can send a variety of unfortunate messages, such as they are not competent to handle the information, or they cannot be trusted, which breed resentment in adult children.

Many of the worst examples of the destructive power of inherited wealth occur in families where children were uninvolved, uninformed and unprepared by their parents. Being involved — with proper preparation and guidance — helps individual children adjust to the reality of what they may or may not receive and plan accordingly.

Siblings are often better than their parents at recognising and accepting the differences between themselves. For example, parents who operate in secret often feel compelled to divide their estate equally, believing that it is the only equitable path. When adult children with disparate economic resources learn of their parents’ estate decisions after the fact, they sometimes wish it had been done differently and might have done more to recognise the differences between them. After the parents’ deaths, however, things rarely change.

Adult children who inherit complicated estates, properties, or businesses become “instant partners”. Any people, including siblings, who become business partners, need to carefully negotiate a range of issues – business and personal – to enjoy a successful partnership and avoid the conflict that so often consumes people who have to share decision making.

When one couple from New England informed their children that they were getting ready to work on their estate plan, the siblings scheduled a retreat to work out a Partnership Charter that documented how they would co-own the business they were about to inherit. Not infrequently, parents are surprised with the constructive ideas adult children have to contribute regarding their own and their siblings’ inheritances. The children in this family gave their 25-page charter to their parents who gave their approval and passed it along to their estate-planning attorney to assist him in preparing their estate plan.

Involving adult children in the pre-estate-planning process does not mean that the parents are turning over the process to the children; they are simply bringing them into it. How they are brought in depends on many factors, including the assets, the children and the expected longevity of the parents. When carried out properly, engaging the whole family in the pre-planning process can make a significant difference to the experience of the family and their advisors.
David Gage is author of The Partnership Charter: How to Start Out Right With Your New Business Partnership (or Fix the One You’re In) and Founder of BMC Associates. John Gromala is West Coast Director of Business Mediation Associates in Eureka, California, USA.