Planning for Your Estate: How to Avoid the Next Episode of “Family Feud”
The rock star Prince passed away just over a year ago, and while many fans are still mourning his loss, it’s likely that several estate planning attorneys assigned to his case feel like they won the lottery. You see, Prince died without leaving a will (that we know of), and the estate settlement “battles” are just beginning. It could take years before his estate is settled. And while these kinds of stories make great headlines, there are many similar “feuds” that occur in the typical American family simply because they failed to make a good estate plan.
Complex Family Dynamics
These days, with multiple marriages and children from those marriages, siblings, step-siblings and their spouses, or family estrangements, it does not take long for a family dynamic to get complex. And with complexity comes the potential for bitter family members (often unhappy with what they inherit) to object to, aka “contest” a will, resulting in long and messy court battles. Clearly, planning for these modern families is no longer the exception, but the norm.
A Written Estate Plan is Job #1
Obviously, a well-documented estate plan can help avoid potential family conflicts. Yet, according to a March 2017 survey by BMO Wealth Management, 56% of those aged 35 to 54, don’t have a will in place. There are many reasons why individuals avoid estate planning, including the fear of dying and the desire to avoid conflicts that may arise during the planning process. However, it is important to document where you want your assets and prized possessions to go, AND to also communicate those intentions now, rather than have them “interpreted” incorrectly later on. As Warren Buffett once said, “Your children are going to read the Will someday... it’s crazy for them to read it for the first time after you’re dead. You’re not in a position to answer questions.”
Most estate planners will tell you that “fair” doesn’t always have to mean “equal.” While leaving each child an equal share sounds “fair,“ each family’s circumstances are different (for example, a child with special needs who won’t be able to provide for himself). And how each heir inherits may also be important: some may be able to handle an outright distribution, but others with “spending” or creditor problems might need to inherit in trust, so there is a “gatekeeper” to protect them from themselves.
Again, preparing heirs ahead of time for the reality that they may not necessarily inherit what (or how much) they expect can help avoid conflicts, and such communication can also help distribute “sentimental” assets fairly. It isn’t always the high-value assets that cause feuds among heirs; it’s dealing with how family heirlooms should be divided. (Note: for more resources on this subject, go to “Who Gets Grandma’s Yellow Pie Plate?”)
Working that out prior to death could help “keep the peace” in the family.
Here are some other points to consider for avoiding family conflicts over your estate:
- Make sure you review your estate documents periodically, and consider updating them upon significant life events, such as marriage, divorce or birth of a child.
- If there is no clear responsible relative to name as Executor or Trustee, consider using a corporate executor or trustee, or appoint an impartial agent to assist a family member.
- Let your named Executor know where to find your estate documents when they are needed, or give them a copy ahead of time.
- If you have charitable intentions, make sure you document them as well, and let your heirs know ahead of time that they won’t be inheriting your entire estate – for their own planning purposes.
- If estate taxes are a concern, consult a good attorney and financial planner to examine strategies to help you avoid them as much as possible, and to help you achieve the fair after-tax distributions you desire for your heirs.
- If having immediate liquidity upon your death is a concern, consider obtaining life insurance to help heirs and with costs of estate settlement.
- Don’t put off the estate planning process until you are too ill or mentally incapacitated to deal with it. The potential for conflict over estate assets within a family grows as a parent without mental capacity ages.
When creating or updating your estate documents, it’s always good to use a legal professional that will work together with your tax and financial planning advisors to make sure all aspects of your financial picture are considered to help avoid future family conflicts. At SRQ Wealth, working with our clients’ legal professionals to make sure their estate plan is kept current and reflective of their wishes is part of our concierge service. If you need assistance with this process, please feel free to give us a call.