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The Wealth & Wisdom Blog

Information on Estate Planning, Estate and Trust Administration and Unique Asset Planning

When my wife and I were first dating, I had the opportunity to enjoy family dinners with her family.  Each of my wife, sister-in-law, brother-in-law, and their parents are very good cooks, and each of them have particular views on how a meal should be properly prepared.  Anlauf family dinners are characterized by great food and no shortage of opinions regarding the meal.  Early on, my brother-in-law, who also came to the Anlauf family by marriage, gave me this sage advice—whatever you do, enjoy the great food, but stay out of the Anlauf family kitchen.

Similar to the Anlauf family kitchen, some people create an estate plan in which there are too many cooks in the kitchen.

Some well-meaning parents, in an effort to avoid disappointing one or more adult children, decide to name all of their adult children in critical fiduciary roles.  When discussing such an arrangement with my clients, I emphasize the significant legal duties held by the named fiduciaries, including the duties of loyalty and to keep other family members reasonably informed of activity. More than simply a ceremonial title, a named fiduciary has legal obligations to make decisions for the benefit of all family members.

When representing fiduciaries during a loved one’s incapacity or following a loved one’s death, we see the legal and practical implications of naming too many decision-makers.  Of particular note is the use of a “Transfer on Death Deed” (sometimes referred to as a “TODD.”)  Through the use of a TODD, a client (or clients) can direct the ownership of real estate to a beneficiary or beneficiaries, who become the new owners effective upon death (or, if clients are married, generally upon the second death).  The TODD does not change legal ownership during lifetime, but transfers legal ownership to the named beneficiary only upon the death(s) of the current owner(s).

While the TODD strategy is an effective way of avoiding probate and transferring title following death to just one beneficiary, I have seen unintended consequences arise following death where the clients name more than beneficiary. In that case, then upon death it will be necessary for all the named beneficiaries to (a) come to an agreement as to when to sell the property, and for what price, (b) who to hire to market the property, (c) to personally attend a closing, and (d) make arrangements for the division of all sale proceeds.  To make these logistical matters even worse, Minnesota law requires a married owner of any real estate parcel to obtain his or her spouse’s signature on any deed transfer.  For example, if a client names her four children as the TODD beneficiaries, and if each of those four children is married following the client’s death, it will be necessary to obtain the agreement and participation of all eight family members, each of whom have an equal legal “say” in all decisions.  Too many cooks in the kitchen. 

When I meet with new clients who have heard about TODD planning but who have multiple beneficiaries, I generally recommend the use of a revocable trust to own the real estate in lieu of a TODD.  Through the use of a revocable trust, clients can name just one decision-maker, the Trustee, who will hold fiduciary duties to the rest of the family.  The administrative hassles associated with the sale of the real estate, and subsequent transfer of sale proceeds, are greatly reduced through the use of a revocable trust.

As you can imagine, this same “too many cooks in the kitchen” issue can apply in other estate planning and administration contexts, including transferring ownership of the family cabin equally to children without proper planning, or transferring ownership of bank or investment accounts to adult children. George Washington, who knew something about how to manage important tasks, once said, “My observation is that whenever one person is found adequate to the discharge of a duty…it is worse executed by two persons, and scarcely done at all if three or more are employed therein.”  There may be good reasons to name more than one decision-maker, but clients should be advised of the gains in efficiency earned by naming as few individuals as possible.