We've all heard the estate planning horror stories, if not experienced them firsthand: A death in the family. A sizeable inheritance left behind. Not much in the way of a will. A blowout fight over who should get what and why.
According to an Ameriprise survey, on the rare occasion siblings fight over money – only 15 percent cop to the charge – nearly 7 out of 10 do so because of matters involving their parents. Inheritance, the study found, is among the chief catalysts.
Arguments over legacy, however, do not happen in a vacuum. Bequest alone does not naturally lead to money. Other factors can aggravate family feuds over the estate of a deceased relative:
- Earning disparity among beneficiaries: Should heirs with lower incomes receive bigger slices of the pie, so to speak? Is giving higher-earning heirs a smaller percentage a punishment for financial success?
- Perceptions of how beneficiaries will spend their shares: Are criticisms over past spending habits, particularly negative ones, valid in a discussion of wealth disbursal?
- Differing personal opinions about money and property: If a beneficiary believes money can't buy happiness, why leave them the same amount as another who believes money can open doors when managed properly?
- Debt (and how debtors got there): Should beneficiaries in arrears receive larger cuts to help them dig their way out, or is debt evidence of poor money management and grounds for a shrunken share?
- Interpersonal dynamics that have nothing to do with money: Does one sibling have a reputation for unjustly speaking on behalf of others? Does another consider himself or herself to be the "least favorite child"? Is the deceased a divorcee with estranged biological children or stepchildren?
Family members can and will pick apart these grand questions for weeks, but the universal answer resolving them all lies in the benefactor. So while you still have a say in the matter of how your wealth is to be distributed upon your passing, follow these estate planning guidelines to quell bickering before it starts:
1. Establish separate trusts
First and foremost, do not pool your funds into a single trust. Given the complexity and emotional stress estate planning can lead to, it's easy to convince yourself to drop everything into a pot and believe the heirs will sort it out. Chances are good they won't, at least not without squabbling. Instead, take a headcount of total primary beneficiaries and create trusts according to that number.
2. Set up an additional trust for tying up loose ends
After you pass, someone will have to pay for distribution services, end-of-life care, moving costs and the like. But who and how? Remove that uncertainty from the equation by diverting a portion of your money to settle these affairs so heirs won't have to argue over which of them should.
3. Discuss long-term goals with family
Striving for Solomon-like fairness, while noble, will instigate more problems than it will solve. You need not be fair to prevent infighting. You must, however, meet the expectations of your heirs.
Say you have two adult children. One is an unmarried entrepreneur, the other a father of three. After talking with the two separately, you find that they both have, as you anticipated, different long-term goals for their share of your inheritance. The first wants to grow her business. The second wants to start college funds for his kids. Although one of those objectives many cost slightly more or slightly less than the other, their achievement is what is most important. If you can help your beneficiaries realize their dreams, exact dollar amounts (hopefully) won't matter.
4. Be honest about upkeep with everybody
Similar rules apply in terms of property: talk frankly about what items heirs expect to receive and why. These candid conversations, while difficult, will preempt conflict. Small items like furniture or personal effects should be easy enough to square away with a little extra communication and planning. Larger, more expensive assets like vehicles or vacation homes will require more detail.
But regardless of your estate planning approach, always disclose upkeep costs to interested parties. If, for instance, you remind your heirs that the family lake house requires expensive year-round maintenance, it may be easier to alleviate tensions around sharing the property or selling it off outright. Benefactors should, however, stipulate how the communal property is to be shared through a dead-hand control provision.
For more information on how to put your affairs in order, consult a financial planning and wealth management professional today.