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Saturday, April 23, 2016

Saturday Finances—9 Sensible Ways to Avoid Inheritance Conflicts

Making things easier for your heirs




How to Avoid Inheritance Conflicts


From the Fidelity Viewpoints article, "Head Off Squabbles Among Your Heirs," 
by Eleanor Laise, Kiplinger_30 Nov 15


Do your heirs a favor and discuss 


Let's Face It

We're all going to go to that big 5-star hotel in the sky.  It's an uncomfortable subject for most people.  The adult children don't want to come off as money-grubbers, and parents don't love the idea of sharing their financial details with the kids and their spouses.

But, whether we like it or not, each one of us is going to die, and chances are, our children, their children, or some other legally deserving family member will inherit our stuff.  Unless we make arrangements to donate the estate, it will go to the legal heirs.  


Let's Start There

Think about what is fair to those who will outlive us.  Do not assume that family members will behave.  Grief does funny things to people, and relatives either tend to get greedy or they end up guessing and trying to make everyone happy.

Blended families are especially prone to disputes.  Every individual may have an equally legitimate point of view.  It can get complicated with half-sibs and step-sibs, especially when there are overlapping histories separated by decades.  That is why it is vitally important to sort it out in a Trust or a Will.  Even then, there can be disputes, but at least the disputes can be filtered through the terms of the estate.  


Begin the Dialogue

Poor communication is the primary cause of inheritance conflicts.  This is a problem that can be avoided from the start.  

1.  Include potential heirs in the process as you create your estate plan.  

I was brought in as a successor trustee after my dad had completed his trust.  I was not included in the decision-making process.  He set up the trust himself.  Our discussions had to do with the logistics of my role as successor trustee.  

My dad knew 3 things about me:  

1.) That I was not affiliated with a religion, a spouse, or any other connection that might interfere with my ability to carry out his last wishes;

2.) I understood his intentions and would faithfully stick to his directives;  

3.)  That I would be fair, thoughtful and efficient. 

I met with him on and off for a year to establish myself as the legal successor when it came to first contact information, i.e. the name of his trust attorney, his bank branch, the funeral home where he had a pre-need (prepaid) cremation contract, and the names of trusted friends.

Together, we went over the contents of his safe deposit box.  Among other things, it contained his most important papers (e.g. property deeds, vehicle titles, stock certificates, original birth certificates, etc.) and the passwords to all of his online accounts.  I was signed onto the box as a co-owner and given a duplicate key.  He introduced me to the manager of the bank who explained the procedure for accessing the box.    

My dad showed me how to activate and deactivate the alarm at his house.  He showed me where the dog meds and the dog food were located.  He gave me a set of keys to his house and to his vehicles.  He gave me a copy of his VA insurance policy.  He showed me where his files were located.    

When he unexpectedly passed away 3 years later, I knew where and how to begin.     


2.  Choose One Successor 

First, decide who has the skills and the time to close every aspect of your estate.  

If you have a Will, a probate judge will appoint an executor (preferably the person you name in your Will) to settle the estate.  The court oversees its administration and gives final approval.  

If you have a trust, the designated successor has the full authority to administer the estate without the burden of probate.  The successor is responsible for managing and distributing the trust assets for the benefit of the beneficiaries in accordance with the terms of the trust.  The successor prepares a detailed report of trust administration, and it is signed by the beneficiaries before the estate is officially closed.

If you want to avoid conflict, make one person the executor or the successor and let it be known that he or she will be the one to act on your behalf.  It complicates things unnecessarily if more than one person has to sign every legal document.  

If there are open rivalries among the adult children, name a trusted non-beneficiary friend or an estate attorney to administer the estate.  

If there is any doubt about your successor's willingness or ability to administer the estate, include a back-up plan and name your estate attorney to represent your successor if he or she is unwilling or unable to step up to the responsibilities when the time comes.  We did this because our daughter lives in Denmark, which would make it difficult for her to administer our estate in the U.S.

One of the financial advisors at my local bank told me that it took 2 years for one of their clients to arrange a time when both of the co-successor trustees could meet at the bank to sign important trust documents.  

Successor trustees sign a contract with the estate attorney to close a trust usually within one year after the original trustee passes away.  I worked on my dad's trust every day for 360 consecutive days and closed it on time.  Even a week's delay would have required me to file an extension, and who knows what additional time and expense that would have cost the estate.  




3.  Meaningful Stuff 

Talk to individuals about inheriting meaningful items.  It is wonderful to pass these things on before you die because you can share the memories and present the gift(s) personally.  This avoids any question of who gets what after you're gone (especially valuable items, like jewelry).  You make the decision, and your successor trustee is not left with the burden of deciding who gets what. 


4.  No-Contest Clause

It may not hold up in every state, but a no-contest clause is a good way to drive home the point that any heir who challenges any provision of the estate gets nothing at all.  It's a good idea to leave a disinherited heir something in order to discourage him/her from losing it all by challenging the estate.


5.  Size of the Estate

Give your heirs a sense of how much they will inherit.  Finding out that there is much more to an estate than originally anticipated can trigger immediate jealousy and resentment among siblings (and their spouses), depending on how the assets are distributed.  It can trigger a feeding frenzy.  

Let the heirs know if the estate will not be distributed equally among them and give them clear reasons why.  Each individual may not want or need to inherit an equal share.  Be fair and respectful of the personal sacrifices made on your behalf, and don't distribute equally without thoughtful consideration for what it will mean to the recipients. 


6.  When Equal Is Not Fair

Equal is not always the fair way to go, for a variety of reasons.  

  • Disinheritance
  • An outstanding personal loan
  • A long-term provision of care (one or more of the children have provided care, while others have been out of the picture)
  • A refusal to inherit
  • Unwanted property
  • Financial need  
  • Vacation properties (shared ownership and what to do with a property can lead to conflicts)
These are all good reasons to leave unequal shares.  If you decide to leave unequal shares, include a separate explanation in a letter to the successor and request that copies be distributed to the beneficiaries.   

Your attorney can and should advise you when it comes to leaving property to multiple heirs.  Do what makes sense and be realistic about how the property can be managed by multiple heirs.  A better alternative might be to put the property into a limited liability company and then leave interests in the LLC to the heirs.  An heir who wants to sell can simply sell his/her shares to the other heirs.  The operating agreement can be drawn up by the attorney.  

Bottom line, don't leave bitterness as your legacy.  It is better to leave a final message of kindness and understanding when it comes to your significant lifetime relationships.  This has the power to heal lifetime conflicts or keep them going for generations.


7.  Donating to Charity    

Talk to heirs about your goals, particularly if you are leaving part or all of your estate to charity.  Disputes can be avoided if people have an explanation before the time comes.  Let them know why a cause is important to you.


8.  Financial Power of Attorney

Rather than adding a responsible heir as a joint owner to bank accounts, consider granting him or her a financial power of attorney.  This enables him or her to help manage your banking if you need help, but it keeps the account under the umbrella of the estate rather than making it a jointly-owned asset that automatically gets passed to the co-owner if you should die.

If one child automatically takes ownership of a bank account (rather than the estate), it can create resentment among the other heirs.  When it is an asset of the estate, it is easier to distribute among the beneficiaries.


9.  Blended Families

3 things you can do to avoid conflict:


  • Get a pre-nup before the marriage; 
  • Set up a marital trust, which can help provide for the new spouse after your death, while also ensuring that the children from a previous marriage receive their rightful inheritance;
  • Update the beneficiaries on retirement accounts, brokerage accounts, annuities and insurance policies.  Named beneficiaries automatically take control of these types of assets, outside of the authority of the Trust or the Will.  Leaving an ex-spouse or a deceased spouse as a named beneficiary turns ownership of that asset over to them!  Old info trumps the terms of a Trust or a Will, so make sure that your beneficiaries are updated.  It's easy to do online!

• live • well • die • well •