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Thursday, October 9, 2014
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Singer James Brown's will didn't include his wife, Tomi Rae Brown, (seen with him in 2005), leading to a court fight that continues almost eight years after his death. Associated Press
Hyman Darling knows personally and professionally just how bitter inheritance disputes can get. An estate lawyer in Springfield, Mass., he no longer talks to some members of what he says was once his tightknit New England clan after a fight following the 1993 death of his grandmother.
Battles over estates can exacerbate tensions among siblings and tear families apart. But there are ways to significantly lessen the chances that your heirs will battle one another.
Doing the right kind of advance planning can help avoid conflict. That includes consulting with your heirs or getting your property appraised to ensure that the items you bequeath are appropriately valued. Also, make sure you choose your executor wisely.
Accenture, ACN -2.07% a global consulting firm based in Dublin, Ireland, estimates that some $30 trillion of wealth is going to be passed from older generations to younger generations over the next three to four decades. That shift will create ample opportunity for estate fights among the wealthy as well as the merely affluent.
Roughly 70% of families lose a chunk of their inherited wealth, mostly due to estate battles, according to research conducted over two decades by the Williams Group, a San Clemente, Calif., firm that helps families avoid such conflicts.
The fights aren't always about the money, either. "You can have a multimillion-dollar estate, and too often the children are fighting over the $2,000 watch," says Bernard Krooks, an estate lawyer at Littman Krooks in New York.
He says it isn't uncommon for people to spend more money on legal fees battling siblings or other family members than they stand to inherit.
Mr. Darling spent his share of his grandmother's estate on hiring a lawyer and deposing family members he suspected of unduly influencing his grandmother. "It really wasn't about what I was going to get," he says. "I was looking for the truth."
Here are some pointers for families to consider when devising an estate plan.
Beyond Dollars and Cents
Estate planners and other experts advise clients to think at least as much about the nonfinancial aspects of dividing their property among children and other heirs as they do about minimizing taxes.
"Don't assume that fair means equal," says Marlene Stum, a professor of family social science at the University of Minnesota in St. Paul and author of a book about the family dynamics of inheritance, "Who Gets Grandma's Yellow Pie Plate?" "When it comes to property and possessions, it's almost impossible to be equal," she says.
A good place to start is deciding on what "fair" means within the context of your family.
A parent might decide to leave a larger inheritance to an adult child who struggles financially and less money to a child who has struck it rich on her own. A sick or disabled child might need to inherit cash for long-term care but wouldn't find much use out of a family vacation home.
Conversely, a parent might be reluctant to leave money outright to a troubled or estranged child or believe they had given a child enough money while alive to justify leaving nothing else to him in a will.
In Mr. Darling's case, his grandmother, who owned two stores and real estate in New Hampshire at the time of her death, had four living children and several grandchildren. Mr. Darling's own mother, who was one of the grandmother's five children, had died when he was 19.
Expecting to get his mother's share of the grandmother's estate—or at least a lakefront property that had been promised to him—Mr. Darling, then 43 years old, says he was surprised to inherit "only a token" amount of money, a few thousand dollars. Some of the grandmother's million-dollar-plus estate had been given away during her lifetime as gifts to her four living children and a couple of other grandchildren.
Mr. Darling eventually gave up without getting more of the estate.
Now, in his own law practice, he says he makes sure that what his clients say is what they really want. "I have to be able to defend those decisions with family members once they die."
How to Prevent Fights
Communicating your wishes for who gets your personal property and assets after you die and making them explicit in your will are usually the best way to prevent a family feud, experts say.
First, make a list of your assets, including bank and brokerage accounts, retirement savings and life insurance—and note who you have named as the beneficiaries of those assets. Then add homes, big-ticket property such as artwork, furniture, jewelry or expensive clothing and family heirlooms, and consider who you want to inherit those items.
If a daughter is the beneficiary on a brokerage or retirement account, giving a home or artwork of similar dollar value to a son can help balance things out between them.
Experts say it's worth it to ask family members for their input. 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.
Says David Cutner, an elder-law attorney at Lamson & Cutner in New York. "It's not about the money. It's more about 'Did Mom or Dad love me?'"
You may have helped one son with the down payment on a house, for example, but not the other, 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, helping you to explain to your other heirs why he is getting proportionately more than them.
Consistency is important, Ms. Stum says. If one in-law is allowed into the decision-making circle, all of them should be, otherwise resentment between siblings can brew. Listening only to 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.
"People change their minds or the children don't necessarily want what you plan to give them," she says. "Sometimes it's nice to keep things flexible."
There are also some maneuvers you can make to even the financial score among heirs.
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, says Ronnie Ringel, a managing director at Fiduciary Trust in New York, a unit of asset-management firm Franklin Resources. BEN -4.60% Disputed items could be offered for bidding in a family auction.
Conversely, you can set things up to allow family members to bid on a coveted property after your death.
Linda Hirschson, the chairman of the New York estate-planning group at law firm Greenberg Traurig, had a client who had a vacation home and farm in New Hampshire valued at around $2 million. At the time he was making his plans for passing it down to one of his three children, he was in his 90s and the children were already middle-aged.
He ranked his children based on his opinion of who would want the house more. A daughter in California was put last, a son on the East Coast was ranked second and a daughter in the Midwest was ranked first. She got first dibs on the house, and its appraised value came out of her total share of the father's estate. Had she not wanted it, the son would have gotten next dibs, and the other daughter after that.
Another client had a family business. The son was involved in management and the daughter wasn't. The son was designated the heir to the business, and he and the daughter jointly inherited commercial real estate associated with it. The daughter was also given a lump sum of cash determined by her father to be fair compensation, Ms. Hirschson recalls. The son was responsible for paying the estate taxes associated with the business.
Life-insurance proceeds can also be used to compensate one heir for getting less real property than another, says Mary Schmidt, an estate lawyer at Schmidt & Federico in Boston.
Choosing a Referee
The person you designate to distribute your assets and belongings after your death is a key consideration—one that people often don't think through, experts say. 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 smoldering sibling resentments.
Mr. Cutner says it's generally best to appoint a family member or trusted outsider who isn't a beneficiary of the estate. That person can get paid by the estate for his or her time in organizing papers and distributing the assets, and can be a coolheaded referee for any inheritance disputes.
Even then, things might not go as intended.
The late Diana, Princess of Wales, with her sons, Prince William and Prince Harry, in 1985. Princess Diana's estate was divided between her sons as her will provided, but her wishes on personal belongings weren't followed precisely. Getty Images
Diana, Princess of Wales, who died in 1997, directed in her will that her two sons, William and Harry, would each inherit half of her estate when they turned 25. She also wrote a separate nonbinding letter directing that one-quarter of her personal belongings, not including jewelry, be split among her 17 godchildren. The will gave her mother and sister discretion as executors to distribute her money and belongings.
The executors didn't follow the letter's wishes, instead giving each godchild one single personal item that had belonged to Diana, according to testimony in a 2002 court case.
"If you give executors discretion, you run the risk that your wishes won't be honored," says Andrew Mayoras, an estate lawyer in Troy, Mich., who has written about inheritance battles. "You should always spell out your wishes clearly in your will."
Making your intentions known directly to your would-be heirs can also clear the air ahead of time so they won't erupt into internecine conflict after you're gone—particularly in the tricky situation where one child isn't going to get much money, if any.
Some people put a clause in their will that says an heir who tries to contest it will get nothing. So-called no-contest phrases only work well, however, when the heir in question has enough of a reason not to fight it, says Mr. Krooks.
A $1 million estate that leaves $100,000 to an heir and the rest to someone else, for example, comes with 100,000 built-in reasons for the heir not to fight it, compared with a will that would leave that heir nothing.
"You have to make it worth everyone's while so that what they stand to lose is significant," he says.
You should also detail in the will the reason why someone is getting substantially less than others, or nothing at all, with a phrase such as "I realize I didn't leave Sally anything and that's because of XYZ," says Barry Fish, an estate lawyer at Fish & Associates in Toronto.
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, Mr. Fish says.
For example, say an elderly mother wants to leave more of her estate to one daughter who has helped her in her old age and very little to a daughter who has been difficult and estranged. In her will she could split her estate between them 90% to 10%, but that opens the door for the estranged daughter to fight for records and other documents to challenge the will.
If the mother had established a $20,000 gift for the estranged daughter and left her estate to the other daughter in her will, the second daughter doesn't have anything to challenge.
Giving both daughters an overview of what is in the will in advance will help keep the peace. "Silence is not golden," Mr. Fish says.