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Spring 2013

November Current Thinking Column

Monday, November 30, 2015

Unintended Consequences

by Joe Paul

Fred had a reputation of being one of the top estate planning attorneys in the region. He had his share of groundbreaking, but legally durable documents. However, over the years, a significant percentage of his estate planning cases were met with passive resistance to the implementation of his elegant plans from clients. Even when the consequences of inaction were dire, some clients persisted in self-destructive evasion and resistance to establishing a plan.  These frustrating clients would fail to return calls, repeatedly reschedule appointments, fail to approve documents, and generally drag their feet. A current couple is a recent case in point in Fred’s legalistic woes. If either of the couple (who are in their mid-eighties) died without funding a crucial trust, their estate would have to pay millions of dollars in unnecessary taxes. Fred was considering withdrawing from the case. However, when Fred probed more deeply into the family dynamics, he discovered that one of the couple’s children was emotionally blackmailing her parents. She told her parents that they would never see her children again if they made her brother the president of the company. 

When a client resists the services of their advisor it is often because of an intersection of two issues:

1. The client omitted something important in the assessment of their issues.

2. The client is withholding information out of fear of untended consequences, usually in the family relationships.

Here is list of some of the issues that you might probe with your client:

Chemical dependency in the family creates an atmosphere of secrets.  Often the family with these issues creates a set of unspoken rules such as “don’t think, don’t feel, don’t talk.” The advisor’s need for information violates these family rules and puts pressure on the family to do things they don’t know how to do.

The consequences of tax evasion can weigh heavily on the family leaders. There are usually “thinking errors” at work such as, “If you don’t get caught, it doesn’t count.” The evader usually has an underlying sense of entitlement that justifies his illegal activities. 

Mistrust among family members.

Incompetent successors may be an issue that is difficult to deal with for the elder generation.

The unequal distribution of inheritance can create open warfare between siblings.

The propensity to flood planning processes with emotional reactivity derails rational discussion.

The groomed successor decides she does not want to stay in the company.

Issues of unfairness within the family.

The founder is emotionally unable to give up control.  Retiring is like a version of suicide.

The fear that the succeeding generation is not likely to function well together.

The lack of transparency based on mistrust and/or internecine competition.

Fred initially thought the daughter’s actions were deplorable, but later discovered the rational thought process behind her actions. When Fred interviewed the daughter, he found that she had good reasons to question her brother’s fitness to be president.  He was prone to take risks that were dangerous to the long-term viability of the family’s assets, and his parents had bailed him out of bad deals on several occasions. At the same time, she felt her brother had their parents wrapped around his finger.

The attempt to change her parents’ mind about her brother’s position had fallen on deaf ears. Thusly, she made a desperate attempt to prevent a financial tragedy by threatening to withhold her children from their grandparents.

With a complete picture of what was truly going on in the family, Fred was able to make effective plans and suggestions for the betterment of the family business. In order for the brother to remain president, he had to find an investor to buy out the rest of the family. He was successful in doing this, so the family remained protected and cashed out. Unfortunately, over the next few years, the son lost the confidence of the investors. Several capital calls later, he was fired with only a fraction of his original stock in the company.

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