Preventing Family Fights Over Inheritance.Submitted by Levy, Daniel & McGee Wealth Management on July 13th, 2020
In my thirty-plus years of providing financial advice, more often than not, I have found family relationships are greatly strained when inheritance passes from one generation to the next. Parents tend to act as mediators between children. However, once mom and dad are gone, brothers and sisters are prone to fight more often and more aggressively. The challenges of maintaining loving and respectful family relationships become much greater when money is involved. Blended families have an even harder time trusting one another and getting along. Perhaps not so surprising, the amount of money that causes arguments does not have to be large because long-held feelings of rivalry and jealously are often at the root of the problem. As siblings fractionalize into teams and mount power plays, the whole scenario can be reminiscent of watching reality television at its worst.
1. Consider irrevocable trusts before children start jockeying for position. When both parents are alive, they can provide one another with emotional and psychological support. They are able to act as sounding boards to one another, reasoning together. Once death occurs the surviving spouse no longer has that support. With age, the isolated surviving spouse will become frailer and mental capacity will likely decline. This is when children start jockeying for position. One solution is to use irrevocable trusts that cannot be changed by the children or even the surviving spouses. The use of these trusts can protect the aging parents from themselves and set the children at ease knowing that other beneficiaries cannot use undue influence. Be certain the needs of the parents are met first, prior to using irrevocable trusts.
2. Preplan so family members are not forced to make financial decisions in the midst of a family crisis. Some years ago, a wealthy local farmer died, leaving a large estate comprised primarily of real estate. The discussion of what to sell for estate taxes ensued in the midst of family sorrow, the pressure to pay the IRS, and no clear family leader. While some of the children wanted to liquidate most of the assets because they needed the money, others desired to hold appreciating assets because they didn’t need the money. This scenario can easily be avoided if the family patriarch did some preplanning. The problem was the family patriarch was so focused on the family business that he didn’t take the time to consult with an estate planning attorney. That was an extremely trying time for the children, and the amount of money lost through poor planning might not ever be made back because, quite frankly, the heirs are not as driven nor are they as business savvy as their father who passed away.
3. A corporate trustee can help prevent children from being pitted against one another. There are a number of reasons children either should not, or cannot, manage money for themselves. From special needs to chemical dependency to a pattern of irresponsible behavior, there are many motives for leaving assets in trust rather than outright to a beneficiary. For these types of trust, a trustee is appointed and is responsible for all aspects of the administration. The least expensive trustee is often a family member. However, think long and hard before you have one family member serve as trustee for the other family member. That puts the family in a precarious situation in the event of a disagreement about how the trustee is managing the trust, whether the beneficiary is entitled to occasional special distributions, or how the beneficiary is spending the proceeds. A corporate trustee can be a good solution for these situations. Depending upon the corporate trustee, trust companies can oversee investment accounts, ongoing businesses, farms, agricultural property, and real estate, among others. Costs vary from trust company to trust company, and with the size of the assets under management, but a reasonable estimate is about one to one and a half percent of the assets per year. That might be a small price to pay for keeping peace in the family.
4. Hold a family meeting, especially if the parents decide that “fair doesn’t mean equal”. We have all seen movies in which the family of a deceased gathers to listen to an attorney read the last will and testament. Have you ever seen even one of those scenes end with the family in harmony? The difficulty of explaining how and why an estate will be distributed grows with the size and complexity of the assets. Wills and trusts are not written to explain those how’s and why’s. They are written to distribute assets effectively and efficiently. If heirs are left second-guessing a parent’s estate plan because of poor communication, you can be certain they will second guess how other beneficiaries may have influenced the deceased. Family meetings can go a long way in reinforcing to heirs that the parents, alone, have the ability to control the disposition of their assets. Dad and mom are not obligated to distribute the assets equally. They may have a valid reason for feeling one child deserves more or needs more than another child. The assets belong one hundred percent to the parents, and they get to make one hundred percent of the estate planning decisions. A family meeting to discuss estate planning, with an attorney, CPA or wealth manager leading the process, can go a long way in helping keep peace in the family.
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.
Ken Levy is a financial advisor with, and securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss of principal. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Alternative investments may not be suitable for all investors and should be consider as an investment for the risk capital portion of the investor’s portfolio. Contact: 2111 W. Kettleman Lane, Ste. C, Lodi, CA 95242 or 209-263-0330.