Having personally lived through a family experience in October 2006 following the passing of my grandfather, I continue to share my story with clients, friends, and many others. While there are no guarantees that our decisions are the right ones when it comes to estate planning, we can have a lot of control related to what our family and beneficiaries will be faced with in the future. Often, most of these difficult decisions and circumstances can be removed or avoided with the right level of planning.
In the case of my own family's experience, my grandfather had all the best intentions as he established a simple will a long with some other basic directives for his eight children. Unbeknown to him, given Arizona estate law, this left the door open to contest for his real estate and personal assets after his passing which lasted many years (the Global Financial Crisis in 2008 only made it worse). Half a decade later, the legal process had drained most all of the estate's assets and the family ranch had lost well over half its value during the housing crisis which made any attempt at a sale near impossible. But the hardest part by far was seeing a once large and very close family, now divided.
My grandfather had all the right intentions, but had he known, I am absolutely certain he would have put in place a few more provisions to prevent the possibility of this outcome.
I encourage you to take a few minutes to review your own family's estate planning, as I promise you it will be time well spent. This is long, but here are some guidelines for keeping the peace to avoid fights that can tear families apart.
As more and more boomers reach retirement age, trillions of dollars in family wealth are going to be transferred from older to younger generations. But many heirs (and their advisors) are not prepared.
A significant number of families lose a chunk of their inherited wealth due to estate battles and misunderstandings.
Think at least as much about the nonfinancial aspects of dividing their property among children and other heirs as they do about minimizing taxes.
According to global consulting firm Accenture, an estimated $30 trillion of wealth is going to be passed from older generations to younger generations over the next three to four decades. That will have profound impact on the families involved. Everyone has a different value of a dollar. As a result, differing values about investing, saving and preserving wealth are bound to surface, not to mention differing views on which philanthropic causes should be supported.
Research continues to show that estate disputes are on the rise. The fights aren’t always about the money, either. You can have a multimillion‐dollar estate and the children can be arguing over watches, golf clubs and inexpensive jewelry that have more sentimental value than appraised value.
Sadly, you’ll see heirs spending more money than they stand to inherit on legal fees to battle siblings or other family members (we lived this). That seismic shift in assets will create ample opportunity for estate fights among the wealthy as well as among the merely affluent.
However, before allowing a fight to begin that ends up tearing your family apart, consider using a mediator to work out the differences. Once the battle begins with both sides hiring lawyers, it’s difficult to have either side step back and give up anything as the “line is drawn in the sand” has been drawn.
Steps you can take to preempt family estate feuds
Battles over estates can inflame family relationships, but there are ways to lessen the chances that your heirs will turn against each other. That includes consulting with your heirs or getting your property appraised and specifically designating beneficiaries for those items. Also, make sure you choose your executor wisely.
Here are some other pointers for families to consider when putting together an estate plan.
Estate planners and other experts advise clients to think at least as much about the nonfinancial aspects of dividing their property among children and other heirs as they do about minimizing taxes. As the old saying goes, fair doesn’t always mean equal, and it’s almost impossible to divide things such as property and possessions equally.
Decide early on what “fair” means within the context of your family. A parent might decide to leave a larger inheritance to an adult child who struggles financially and less money to a child who has struck it rich on his or her own. A sick or disabled child might need to inherit cash for long‐term care but wouldn’t get much use out of a family vacation home.
Conversely, parents might be reluctant to leave money outright to a troubled or estranged child or believe that while alive they had given a child enough money to justify leaving nothing else to him or her in a will.
Communicating your wishes about who gets your personal property and assets after you die and making them explicit in your will are usually the best ways to prevent a family feud.
Make a list of your assets, including bank and brokerage accounts, retirement savings, and life insurance—and note whom you have named as the beneficiaries of those assets. Then add homes and big‐ticket property such as artwork, furniture, jewelry or expensive clothing and family heirlooms, and consider whom you want to inherit those items.
It’s worth it to ask family members for their input. Be careful what you ask, as you might be opening a Pandora’s box.
Getting family input also gives you the chance to explain your reasons for arranging lopsided inheritances while you are still alive and can benefit from whatever parental authority you still have. As another example, you may have helped one son but not the other with the down payment on a house, and that’s how you explain to the first son why his inheritance will be smaller. Or your nephew might have been your primary caretaker for the last year of your life, quitting his job to look after you full time, which helps you explain to your other heirs why he is getting proportionately more than they are.
Also be consistent. If one in‐law is allowed into the decision‐making circle, all of them should be; otherwise resentment between siblings can brew. Listening to only the most vocal child and ignoring the rest or being unclear about how and why a certain decision was made regarding money or property also can breed mistrust. Some treat in‐laws as outlaws, and don’t include them. They may just see things differently.
Rather than itemizing who gets what in your will, a simple way of dividing things up equally is to get your property and possessions appraised and then have the children or grandchildren take turns choosing what they want while you are still alive. You can also set things up to allow family members to bid on a coveted property after your death.
Life insurance proceeds can be used to compensate one heir for getting less property than another. For instance, if there’s a closely held business, one child in the business can receive stock in the business and the other children can receive insurance proceeds that equal the one child’s stock.
Choosing a family referee
Often the oldest child gets named executor by default, or two adult children get named co‐executors. Both situations can be a mistake if there are still sibling rivalries or resentments. It’s best to appoint a family member or trusted outsider who isn’t a beneficiary of the estate. That person can get paid by the estate for his or her time in organizing papers and distributing the assets and can be a coolheaded referee for any inheritance disputes. Otherwise, if you give executors discretion, you run the risk that your wishes won’t be honored. If, however, you have only one or two children and they agree it won’t be a problem, then you can take a chance. You’re not going to be there when they’re dealing with your wishes.
Making your intentions known directly to your would‐be heirs can also clear the air ahead of time so they won’t erupt into conflict after you’re gone—particularly in the tricky situation where one child isn’t going to get much, if any, money.
Some clients put a clause in their will that says an heir who tries to contest it will get nothing. So‐called no‐contest phrases work well, however, only when the heir in question has enough reasons not to fight it. In some states such as Massachusetts, no‐contest clauses are effective, but in others states they’re not enforceable.
You should also detail in the will why someone is getting substantially less than the others—or nothing at all—with a phrase such as “I realize I didn’t leave [name of child] anything, and that’s because of XYZ.” A child can be left out of a will as long as the decision is intentional and made by someone of sound mind without being influenced by someone else.
From my experience I’ve learned that there’s no such thing as a “perfect” estate plan, but if you and your advisors are very clear about wishes, values and motivations, you can take the proper steps to ensure that those wishes are carried out with minimal family strife.
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Source: Article contributions courtesy of Capital Directions and CEG Worldwide, LLC, 2017 www.cegworldwide.com | email@example.com. M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees. There are many different interpretations of investment statistics and many different ideas about how to best use them. Nothing in this presentation should be interpreted to state or imply that past results are an indication of future performance.