Overcoming five psychological roadblocks to smart estate planning
By Alan G. Orlowsky, J.D., C.P.A. and David Lansky, PhD.
Smart estate planning can save people, and their heirs, hundreds of thousands of dollars in taxes. It´s mind-boggling, then, that many people postpone estate planning until their options become so limited that they´re essentially forced to donate much of their children´s inheritance to the IRS. Why do they procrastinate, or in some tragic cases, avoid planning their estate altogether?
Some people are overwhelmed by the complexity of their finances or by their chaotic family relationships; some are afraid to contemplate their own mortality; some are loathe to relinquish control of their assets or give away cash or securities to their children; and some just don´t want to pay another lawyer´s bill. These and other reasons for avoidance can cost you a fortune.
Whatever the reason for procrastinating, the tax burden can be catastrophic to your heirs. In some instances, because of poor planning, heirs have been forced to sell off cherished assets such as a family business or home, at fire-sale prices, because the estate didn´t have enough liquidity to fund the estate tax. Serious resentment and jealousy can arise when parents die without allocating valuables among their loved ones in a sensitive, humane, and orderly fashion.
The fact is, in most cases, although some tough decisions must be made, estate planning is no more complex than buying a home or preparing your income tax return. An estate plan typically involves creating a will, one or more trusts, and two powers of attorney. Fees for financial and legal advisers are minor compared with the money saved and feelings spared by good planning. And the earlier you begin planning, the broader and more flexible your choices will be.
Still, the psychological roadblocks can be as powerful as they are often irrational. It´s worth taking a look at the ways in which people avoid planning their estates and how to overcome those roadblocks. Here are five of the most common ones:
Many estate plans are never prepared because of strained relations between spouses or with other family members. Discussions about financial issues can be very emotional or even taboo in some families, and can inflame existing tensions. You may have a tendency to postpone estate planning just to avoid dealing with those tensions.
It is usually best to start by assuming that these tensions arise from simple differences of opinion regarding priorities, values, goals, or advisers. In this case the best course of action is to engage in a process of active listening. This means that as you begin the estate planning process, possibly even before you speak with an adviser, work as hard as you can to understand how your spouse or family members see the situation. Ask questions, make disclosures, and set the goal of understanding others´ views, not necessarily agreeing with them. When people feel listened to and understood, differences of opinion are more rapidly resolved and compromise comes easier.
If active listening does not resolve differences, chances are that there are more serious, underlying relationship problems. The differences of opinion then may be symptoms of deeper problems that can only be solved with the help of a therapist or counselor. While it is ideally best to plan your estate with your spouse and/or key family members, if conflicts and communication problems cannot be resolved (and this is sometimes the case), then it is better to prepare your estate plan alone rather than not at all.
Contemplating the reality of your own death is not pleasant. Occasionally we work with people who are so uncomfortable with it that they deny their mortality – one client nervously joked, “I´m not going to die!”
It is natural to feel some anxiety about writing a will, choosing executors and guardians, funding life insurance policies, and realizing that people will be enjoying your wealth after you´re dead. It is also likely that your loved ones and trusted advisers will feel some awkwardness when discussing, in your presence, your demise and how they feel about inheriting your money, your house, or even little things like your favorite works of art, jewelry, or power tools.
You can deal with this anxiety and awkwardness by taking it one step at a time. This process is called desensitization. Begin by reading books or articles about estate planning. One highly recommended book is Loving Trust: The Right Way to Provide for Yourself and Guarantee the Future of Your Loved Ones, by Robert A. Esperti (Viking Penguin, 1994). Ask friends and colleagues – especially older and wiser ones – how they´ve approached estate planning issues. Talking about it casually, without the pressure of a deadline, can help relieve your anxiety.
When you feel more relaxed about it, start to schedule meetings with your financial and legal advisers, along with your family. Your advisers can help you establish a structure for accomplishing the various tasks necessary for completing your estate plan.
Try framing the estate plan as a positive event in your life – look at what you´ve accomplished, the wealth you´ve created, and the legacy you´ll leave for the people who will remember you as a warm and generous provider.
Many decisions are never made due to the fear of making the wrong ones. Estate planning involves making choices that can have a profound impact on the lives of family members, not to mention your own financial security, and the consequences of making big mistake can instill fear in anyone.
But the goal in estate planning is not perfection — the goal is planning well for your future and that of your loved ones. If the fear of making a wrong decision is interfering with your planning, try doing an informal cost-benefit analysis. What will the approximate estate-tax burden be without a plan? (You may want to ask a trusted financial adviser for help.) What are the potential savings of a good (not perfect) estate plan? Even a half-decent estate plan, in the estimation of a perfectionist, could lower the tax burden substantially. You may find that the risk of being without a plan far outweighs the risk of making a mistake.
And remember, most mistakes can be corrected. Even if you simply change your mind, your will and estate plan can usually be revised.
All of us have heard nightmare stories about incompetent or fraudulent hospitals, auto repair shops, attorneys, and other service providers. These stories may keep some people from consulting legal advisers to help plan their estates. Such stories, while both alarming and seductive, fail to convey the many positive experiences that people have with professional advisers and service providers.
The truth is, there are many excellent attorneys in the community. You can find one by calling the local or state bar association for referrals, ask your accountant and stock broker (and friends and neighbors) for recommendations, and check with your chamber of commerce. But don´t assume a passive role in the estate-planning process. It is your plan, and you should not relinquish total responsibility to the professional with whom you consult. Take an active role in setting deadlines, double-checking your financial data, investigating options, getting answers to questions, and clarifying goals. If you feel intimidated or unable to communicate well with your advisers, inform them and make every attempt to resolve the communication problem — it´s your future that´s at stake.
There are many people who do not plan their estate because they can´t let go. They fear that by placing their assets in a trust or passing on their wealth in the form of gifts, they may jeopardize their own secure future. Of course, that is not the case when an estate plan is thoughtfully and competently developed. When anxiety about your financial security interferes with planning for the future, it may help to assess the relative importance of money, good health, spiritual well-being, and family support in bringing about a sense of optimism and security. Achieving a sense of balance between family, health, spirituality, and finances is the real key to security.
It may be that worries about the potential costs involved in the estate-planning process itself can cause you to procrastinate. It might help to ask a few selected advisers what the planning process will, in fact, cost — most of it will be attorney´s fees — and compare that with the potential savings in estate taxes. It could be one of the best investments you ever make. The aphorisms “you can´t take it with you” and “penny wise, pound foolish” apply here.
Procrastination favors only the IRS. The way to begin planning is to have open and honest discussions with your family about finances, personal goals, and mortality. The process may even bring you closer together — and that´s worth more than any material asset.
Alan G. Orlowsky, President of Orlowsky & Wilson, Ltd. in Lincolnshire, Illinois, has been counseling people on estate planning for 28 years. He previously worked for the IRS in its Estate and Gift Tax Division. He also worked for the Deloitte & Touche accounting firm, and he has taught taxation and accounting at Loyola University of Chicago, School of Business.
Al is a contributing author of the book 21st Century Wealth (Esperti Peterson Institute, Denver, 2000), and has written numerous articles on the subject of estate planning. Contact Alan Orlowsky by email or call 847-325-5559.
David Lansky, PhD, is a clinical psychologist who has been working with families and organizations for over a decade. His involvement with business-owning families and families in transition focuses on team building, conflict management, leadership development, and executive coaching. David is a certified family therapy supervisor, and is a partner in the consulting firm of Family Business Innovations in Deerfield, Illinois. He has taught and supervised family therapists at the Adler School of Professional Psychology and at the Family Institute of Northwestern University.
Contact David at 847-266-1000 or email@example.com.