An estate plan has the ability to cause conflict among family members, which can result in estate administration delays, litigation, and even bitterness toward the deceased. To avoid conflict, potential trouble spots should be identified early during the estate planning process. Here’s how to plan for some situations that could result in conflict.
Unequal distributions to children
Children do not always understand why they were treated unequally. If the reasons are unclear, children may draw incorrect conclusions and act out.
A client can use a letter of wishes or memorandum to explain his reasoning and, hopefully, prevent conflict. Even if conflict still results, letters and memorandums may serve to reduce the possibility of litigation because they make it clear that the parent understood what he was doing—this is relevant to whether the parent was legally capable to make the will.
Letters and memorandums are not always appropriate, especially if they may upset or disappoint the child (e.g., “You were not a good daughter, so your brother received more”). In these situations, your client can use an anti-litigation clause if she thinks a family member might challenge a will. That clause would say that the child forfeits her entitlements under the will if she challenges the validity of the will.
To be an effective deterrent, the child should have a significant entitlement under the will, so that she has something to lose if she challenges it.
Jointly held property
Disputes over jointly held property have become more common. They typically arise when a parent transfers property, such as a bank account, into joint ownership with a right of survivorship with just one of his children. On death, a legal issue arises as to whether the joint property passes to the child or joins the parent’s estate. The parent’s intentions at the time of the transfer determine the outcome; unclear intentions leave the children to sort out the problem.
Legal professionals should be consulted before transferring property into joint ownership. Document the reasons for the transfer and prepare the relevant legal documents (e.g., a deed of gift). The parent can also include a declaration in his will clarifying his intentions.
Estate planning for blended families tends to result in additional complexities, primarily due to differences in family dynamics and objectives, and the multitude of financial interests that need to be taken care of. To avoid or minimize conflict, it’s important to build safeguards into the estate plan.
For example, instead of a surviving spouse inheriting outright, the preferred approach may be to incorporate a testamentary trust into the estate plan. Restrictions can be placed on the trust to ensure capital succession to the children, while at the same time providing for the current needs of the surviving spouse. The restrictions can be tailored to address each particular situation, taking into account the surviving spouse and children’s needs and ages, as well as family dynamics. And, where a spouse and the other spouse’s children do not get along well, conflict can result if they are jointly appointed as executors, trustees or attorneys. Consider appointing independent executors, trustees and attorneys to act alone, or with the spouse and/or children. For such appointments, be mindful that relationships between blended family members may not be as strong as they appear on the surface, and after a death relationships can decline dramatically.
Family cottages, cabins and other properties are commonly left to children equally without thought as to whether the arrangement is workable. Joint ownership can result in conflict if the children have different views on the payment of expenses, usage, succession and how to sell. Here, a family meeting can be helpful: a frank discussion can provide parents with a sense of each child’s wishes. Once those are known, a cottage clause in the will can be tailored to the circumstance. The clause should be flexible enough to deal with possible sources of friction (e.g., it could include a provision that the cottage would be sold if the children cannot work together).
Conflict can be avoided and minimized if potential sources of conflict are identified during the estate planning process. Simply hoping for the best is rarely a good plan.
Originally published in Advisor's Edge Report