Scott Adams, the creator of Dilbert, Made an interesting point recently. He claims to have learned it from a professor while getting his MBA at Berkley.
“So long as two parties do not want the same limited resource, you can usually reach a deal.”
That is a profound point. It is especially important in many estate plans. There is a way to create a distribution that is right, so long as there are no two parties that want the same limited resource. Estate plans fail sometimes because the parents don’t notice the obvious flaw.
The danger for an estate plan is people become captivated by the numbers. For purposes of distribution to heirs, numbers are meaningless if there are other values attached to the things the numbers represent. Like Grandma’s Tiffany broach. Like the family business. Like the cottage.
Some numbers matter. Like money.
Numbers have meaning only when the assets they represent are fungible.
“Fungible – Able to replace or be replaced by another identical item; mutually interchangeable.”
$10,000 on deposit at Bank A is pretty much the same as $10,000 on deposit at Bank B. No heir would care which they received. The sad reality though is that many assets in an estate are not fungible. Others can convert to cash but only at a stiff price. Not all assets are equally good.
Monuments like a family business are especially difficult. Sometimes owning them is a burden for an heir. Is it okay for an heir to sell the family business? Is it okay to work 70 hours a week to make a little out of it each year? Is it okay to guarantee its bank loans and risk losing everything? Monuments tend to be valuable and a problem. Heirlooms on the other hand are usually less valuable and a more nasty problem.
One child might want an item that has personal and emotional significance for them. They may value it far more than the number beside it. But, so might their sibling. Two parties. One limited resource.
There is no guarantee this puzzle can be resolved. As Scott Adams pointed out, it is like Israel and Hamas. There can be no deal because they both want the same limited resource. In the estate setting it is important to identify these conflicts well before they become an estate issue. Mom and Dad can negotiate a solution or at least a compromise while they are living. No executor has much success with this problem.
Estate plans should involve communication with the others involved. Any problem identified early enough has a chance of a workable solution or at least a compromise that leaves everyone equally angry. Learn to precrastinate.
Precrastination, “the tendency to complete, or at least begin, tasks as soon as possible, even at the expense of extra physical effort.”
Learn what your plan means to the heirs, to the executors and even to yourself.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 866-285-7772