Ask a group of friends if they have experienced a family fight over property after a loved one has died, and you will be in for a lively and eye-opening conversation. Far too many families end up fighting, or at least experiencing tension, over a family inheritance. But it does not have to be that way. Many families have worked through the details of divvying up a deceased loved one’s property remarkably well and ended up even closer. Having counseled families for years, we offer the following pearls of wisdom to help your family avoid fighting over your property when you are gone:
- Be open and communicate with family members and loved ones. Hold a family meeting to discuss your final affairs and wishes. You do not necessarily need to discuss what and how much each person will be receiving, as that is always subject to change by you. You can, however, explain how you are dividing the property. If one person is getting a larger share than another, explain your reasons. Some may not agree with your rationale, but at least they will know that you made the decision and why. This can go a long way toward avoiding future litigation between siblings.
- Write a letter and share it with loved ones. If the idea of a family meeting strikes terror into your heart because you envision sibling rivalries flaring up, it may be better to write a letter carefully explaining your goals and wishes as they relate to your estate plan. In the letter, you can simply express your intentions in your own words without worrying about precise legal language. This is especially important if you plan to leave a significant amount to a charity or other organization or to a nonfamily member. If you worry that your letter will be misunderstood, you can ask your lawyer to review it against your estate plan to make sure you have not miscommunicated anything that would conflict with your plan. Even though this type of letter (sometimes called a letter of intent, legacy letter, or an ethical will) is not legally binding in the same way that your estate planning documents are, it can be very helpful to keep family informed about your intentions and to express your love and appreciation for family members and friends.
- Settle on a method for personal property distribution. Many families find it very helpful to discuss how personal property will be divided well ahead of a parent’s passing. Though many estate plans rely upon a personal property memorandum to detail distributions of personal property (if such memoranda are recognized in the relevant state), it is not uncommon to discover a memorandum blank and unsigned after a parent’s death. When this happens, most trusts and wills give discretion to the trustee or executor to distribute the property in equal shares to the beneficiaries. This often requires hiring an appraiser, holding an estate sale, and making equal distributions after the sale. Some families have a much different sense of what is fair, however, and would prefer to use a different method for dividing personal property. For example, a trustee might allow each beneficiary to choose from a list of items in a rotating fashion. Alternatively, the family might have an auction where family members can bid with real money or play money that is doled out in equal shares before the auction. There are endless possibilities, and discussing the merits of the different options with family members can be an educational and even entertaining experience.
- Review your estate documents regularly. In many instances, people discover that they either never fully understood what was in their estate planning documents or have forgotten what they included. Thus, it is very important to review your estate planning documents frequently and write your questions or concerns (on sticky notes, not on the documents themselves!) in your estate planning binder for discussion with your attorney as soon as possible. If you do not understand a section of your estate planning documents, do not ignore it. Call your attorney and request an explanation of that section and its impact on you and your family. If your attorney cannot or will not give you an answer that you understand, you should consider working with an attorney who is better prepared to help you understand your documents and the impact they will have on you and your family.
- Pay close attention to how your assets are titled. A litany of horror stories exists about beautifully designed estate plans that fell apart because assets were titled improperly (i.e., in the wrong name). Be careful about jointly titling cash accounts and real estate. This is often done for convenience, for example, when an aging parent wants to add a child to the parent’s bank account so the child can help pay bills. Doing so can have serious legal consequences, however, as the entire value of the bank account will then pass to the child rather than under the terms of the parent’s will or trust.
- Check beneficiary designations. You should carefully examine beneficiary designations on life insurance and retirement accounts such as IRA and 401k accounts to ensure that they accord with your estate plan. In some cases, parents name an oldest child, second spouse, or no one as the primary beneficiary of an insurance policy or retirement account, assuming that the will or trust will divide up the benefits according to the deceased’s wishes. This is not the case. In most jurisdictions, the name listed on the beneficiary designation form will trump whatever the will or trust states. Beneficiary designations can also have significant legal and tax consequences. It is crucial that you work with a knowledgeable estate planning attorney to help you determine how best to name beneficiaries for your insurance and retirement accounts. Failing to do so can lead to surprising and often contentious results.
- Spend more time together as a family. Consider using a portion of the money that you would otherwise leave to your loved ones to bring them together while you are still here. Many families have found that regularly funding a family vacation or getaway, a cruise, or even a family heritage tour (to Ireland or Africa, for example, to gain an appreciation for family roots) can strengthen relationships and create lasting positive memories for the entire family. Where good relationships exist, there is much less chance of contention between family members who value those relationships.
You have spent a lifetime acquiring your property. The last thing you want is for that property to be the cause of anger, resentment, and frustration among your loved ones. By following even one or two of these suggestions, you can make a huge difference in your legacy. A little effort now can pay big dividends when you are gone. For more information, please do not hesitate to give us a call. We are available for in-person and virtual meetings.
Misconceptions about who needs an estate plan abound. Most people believe that estate planning is only for extremely wealthy business moguls or celebrities. But that could not be further from the truth. Estate planning is the process of making decisions about what happens to you, your money, and your property when you pass away or can no longer make decisions for yourself. Thus, estate planning should be standard practice for every adult age eighteen or older.
One way to think about estate planning is to compare it to a classic recipe you should have in your cooking repertoire by your twenties. Like that satisfying meal, your estate plan should have the right ingredients—or in this case, people.
Do You Have the Right Ingredients?
Creating an estate plan often involves more people than you may initially realize. The recipe for an effective estate plan must include the right roles (i.e., the ingredients). Without the right people in the right roles, your estate plan may fall short and be ineffective. The following people involved in the estate planning process have different but essential functions and are critical to identify as part of your plan:
- Personal representative of a last will and testament. A personal representative is a person responsible for settling your affairs, including collecting and securing your property and accounts, paying your creditors, filing and paying any necessary taxes, and distributing any inheritance to your beneficiaries as set forth in the instructions memorialized in your will. This critical role is sometimes described as an executor and may be a special administrator if the person dies without a will. When selecting a person for this role, it is important to choose someone you trust who can take on this time-consuming process and see it through until the administration of your estate and probate of your will is complete. If you do not have a will, the court will appoint an administrator for your estate according to the court’s procedure, and your property and accounts will be given to whomever state law determines to be the recipient.
- Trustee of a revocable living trust. Another essential part of the estate planning recipe—specifically related to creating a trust—is the trustee. The trustee is the person or company responsible for managing the money and property in your trust. When you create a revocable living trust, you will often serve as the first trustee but will appoint another individual or company to serve as a backup (also known as a successor trustee). You should also identify at least one other alternate trustee. The alternate trustees act as second or third choices if the original successor trustee does not want to or cannot serve as the trustee after you. Generally speaking, the trustee carries out your wishes and instructions as outlined in the trust agreement, so this document determines the scope of the trustee’s responsibilities. Typical responsibilities include managing and investing trust property and accounts, paying bills, filing taxes, and distributing your possessions to whomever you have listed in your trust. It is vital to choose someone who can handle the responsibility. Suppose you own property or accounts that might be considered complicated, such as investments and intellectual property. In that case, it is essential to choose either a sophisticated trustee or someone who is comfortable seeking the advice of a professional in that area. This is especially important because the trustee has a significant legal responsibility and a higher standard of conduct, called a fiduciary duty.
- Heirs or beneficiaries. Many people think heirs and beneficiaries are the same thing. This is not the case, even though they play similar roles. Your heirs are family members who are entitled to receive a portion of your money or property after you die. In some cases, wives may not be considered heirs because they are joined to their spouses by marriage. On the other hand, a beneficiary is a person or organization that you have identified in a will, trust, or other legal document to receive part of your property and money. Beneficiaries and heirs do not have any responsibility to you. The critical thing to keep in mind when it comes to heirs and beneficiaries is finding them and adequately identifying them in the relevant legal document so that everyone receives what was promised.
- Agent (financial and medical power of attorney). An agent is someone to whom you give authority to act on your behalf. The most important agents in estate planning are your financial agent and your medical agent, sometimes referred to as proxies or representatives depending on the state. The financial power of attorney gives your agent the authority to manage your financial affairs when you are still living but unable or unwilling to act, including paying your bills, filing your taxes, and managing your property. The medical power of attorney authorizes your healthcare agent to make decisions on your behalf only when you are unable to make decisions yourself, for example, when you are unconscious or under anesthesia. Both the healthcare and financial agents can only act with the powers and within the scope that you have specified in the powers of attorney. When selecting an agent for these roles, note that they do not have to be the same person. Next, make sure the appointed individuals will do what you want and not what they want. Finally, it is important to make sure you communicate your wishes to your designated agents to ensure that they do things the way you want them done.
- Guardian for minor or dependent children. Another critical ingredient in your estate plan is naming someone to care for your children or other dependents if you are unable to, either due to incapacity or death. Depending on where you live, a guardian for your children can either be named in your will or in a separate document called a nomination of guardian. When choosing a guardian for your children or dependents, consider someone you trust whose values are similar to yours. Selecting a guardian can be a very difficult task, but failing to nominate someone yourself takes the decision out of your hands and leaves it up to the court.
We Can Help You
Our team has a history of creating satisfying estate plans that bring peace of mind and help our clients avoid some of the challenges associated with transferring property and money at the time of their death. Call our office to schedule an appointment with our team of experienced attorneys.