According to Cerulli Asssociates, over the next quarter century, roughly 45 million U.S. households will collectively bequeath $68.4 trillion to their heirs1. That has a profound impact not only on wealth managers, estate planners and other financial advisors but on the families involved as well. Differing values about investing, saving, and preserving wealth are bound to surface, not to mention differing views on which philanthropic causes should be supported.
Estate disputes are on the rise2. The fights aren’t always about the money, either. You can have a multi-million-dollar estate and the children can be arguing over watches, golf clubs and inexpensive jewelry that have more sentimental value than appraised value.
Sadly, we see heirs spending more money than they stand to inherit on legal fees to battle siblings or other family members. That seismic shift in assets can create opportunity for estate fights.
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.
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.
For instance, if a daughter is the beneficiary of a brokerage or retirement account, giving a home or artwork of similar dollar value to a son can help balance things out between them.
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. For example, you might have assumed your daughter wants the Steinway baby grand piano when she doesn’t, or you might have thought nothing about a worthless box of old holiday decorations, while all three of your children are jockeying to claim it for themselves.
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.
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.
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.
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. If that’s the case, it may best to appoint a family member or trusted outsider who isn’t a beneficiary of the estate as the executor. That person can get paid by the estate for his or her time in organizing papers and distributing the assets and can be a cool-headed referee for any inheritance disputes.
Finally, a mediator might be helpful to ward off a conflict that could tear the family apart. A meditator might be helpful as you discuss your intentions with your heirs. A meditator could also be beneficial after you pass if there are contested areas of the estate plan, instead of your heirs’ hiring attorneys. 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.
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 carry out your wishes with minimal family strife.
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