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December 11, 2006

COMMENTARY: Preventing a power struggle | Family disputes are common in estate and business succession planning. Here's how to ensure a smooth transition.

By Barbara Wheaton
Attorney, Pierce Atwood LLP, Portland

Recent news reports about the estate management troubles of Brooke Astor offer a cautionary tale, and not just for the super rich. In the case of Mrs. Astor, years of careful estate planning by highly skilled attorneys in New York did not prevent the problems that arose when her son and grandson clashed over her nursing care and estate management.

With people living longer, these messy generational situations are bound to occur more frequently, especially when a family business is involved. When money and emotions mix, conditions are ripe for disputes. Avoiding these problems requires smart, long-term planning with an attorney and financial advisor. Special emphasis is needed in three areas that can undermine skillful planning:

1. Family communication about finances
Older generations often are tight-lipped about money, especially with those who were not involved in the family business. By comparison, younger generations often are exasperated by the lack of open talk about money. Communicating early to family members is critical to avoiding future disputes among the generations, especially concerning family business succession. Discuss what is in the estate plan, the plan's objectives, the tools of the plan and how they work. Remember that conversations about family money may ignite long-held family tensions, particularly if some family members participate in the business and others do not.

Resolving these issues may require that key family members create a shared vision for the family and its business, describing how the business and its assets should be managed in the future. In some cases, it may be helpful to have a facilitator trained in family business dynamics work alongside an attorney specializing in estate and business succession planning.

2. Selection of the attorney-in-fact
A smooth-running estate plan requires what's known as the attorney-in-fact named under a durable power of attorney. Who's the best candidate for the job? Choose someone for their attitude and aptitude, not their birth order or ranking in the family business. The attorney-in-fact even can be a trusted friend or colleague from outside the family.

The best candidate is someone with good interpersonal skills and solid judgment, who does not procrastinate and understands that he or she must invest a significant amount of time throughout a lengthy process. The attorney-in-fact need not be a financial guru, but rather should know how to identify, work with and evaluate good professional help. Above all, the attorney-in-fact must respect the wishes and best interests of the parents. A person with these qualities ensures the end result has minimal stress and manageable legal fees.

3. Financial abuse or mismanagement
Sadly, there are many examples of elder abuse, especially financial. Financial abuse or mismanagement often is difficult to prove in court after the fact. Fortunately, steps can be taken proactively to protect the elderly and the assets in the estate plan.

First, know the signs.
ˆ• Consider it a red flag if an attorney-in-fact summarily dismisses the elderly person's longstanding advisors. Switching to new lawyers, bankers, stockbrokers and accountants can be a warning sign.

ˆ• Be suspicious if an elderly person's actions suddenly become inconsistent with long-held values and beliefs. Unexplained changes in financial plans that suddenly enrich one individual can be another sign of trouble.

ˆ• Be attentive to conflicts of interest and any commingling of assets.

ˆ• And of course, the more isolated the elderly person becomes from old friends and family relationships, the greater the chance that one individual can exert full control.

If you suspect mismanagement or abuse, confront the attorney-in-fact and insist on specific financial information. A spouse, child or other direct beneficiary may be entitled to regular reporting as a matter of right. If this is ineffective, work with a lawyer to petition the probate court for formal accountings by the attorney-in-fact or possibly even for the imposition of a court supervised guardianship or conservatorship.

The friends and family of Brooke Astor learned that successful estate planning involves more than just expert accounting and mastery of the law. Open communication and proactive planning also are important drivers, and all key stakeholders in an estate or family business succession plan have a role in maintaining the integrity of the process.

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