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Pay Attention to Red Flags in Estate Planning to Avoid Litigation After Death—Part I

Years of experience in administering estates have taught us that the best way to avoid litigation after death is to plan during life. We have come to identify several “red flags” that, when not addressed during estate planning, are more often than not resolved in a courtroom. Not only does this mean that a judge, rather than the client, is ultimately deciding how the client’s property is disposed of, but the process can be lengthy, emotional, and expensive. With the possibility that attorney’s fees will be paid before any property is distributed to the family members, the lawyers may become beneficiaries of the estate when it is contested.

Unequal distribution of assets amongst children.

Clients who want to distribute their property to their children unequally are almost always asking for a fight. They may want to do this because they are estranged from a child or because they believe that one child “needs” more than another. The slighted child, however, may not agree with mom or dad’s decision. When this comes as a surprise to a child after the client’s death – and the parent is no longer here to explain the thought process and to act as mediator amongst the children – the slighted child feels like his or her only recourse is to hire an attorney.

While every situation is different, it can be helpful for the client to talk to his or her children, either separately or together, explaining why he or she has decided to treat the children differently. Doing so forces the family to come to terms with the proposed plan while the parent is still able to explain his or her reasoning and act as mediator between the children, or for the parent to perhaps rethink his or her decision and ultimately revise the plan so that each child is treated equally.

Tension between a spouse and children from a prior marriage.

Married clients with children from a prior marriage should recognize that their current spouse and children may not be on the same page after the client’s death. If a client leaves all of his property to the spouse, the children feel slighted (“That’s our inheritance!”). Or, if the client leaves his property to his children, the spouse may be legally entitled to bring suit to receive an elective share of the property (generally 1/3 of the estate). Sometimes the biggest fight does not involve dollar amounts at all, but instead questions over tangible property, such as who receives certain household items that may have been in the family for generations.

Careful planning can avoid many common issues that arise in second marriage situations. For example, real estate and other assets can be left in trust for the spouse’s benefit (with as many or as few restrictions as the client deems appropriate), with the remainder passing to the children upon the spouse’s subsequent death. If a trust is to be established for a spouse much younger than the client, the client may wish to consider making some provision for his or her children at death, so that the children need not wait for years before receiving an inheritance. The client should also make explicit provisions for the disposition of all tangible property, especially those items that are valuable or to which family members may have sentimental attachment.

Disposition of a family business. 

Many clients have amassed considerable wealth through family-owned businesses, and family members have different and varied involvement with and emotions towards the business. Failing to carefully, and objectively, create a succession plan for the business is practically asking for a fight.

Each family and each business is different, but usually the following issues should always be addressed: (i) will the business continue or be sold? (ii) who will be in charge of the day-to-day operations? (iii) how will the ownership interests be divided? (iv) if any children are involved in running the business, will they still have an interest in the company? (v) how will the rest of the client’s property be divided?

The most successful business succession plan is created long before the client passes away, and all of the family members should know, and agree with, the contents of that plan to ensure a smooth transition after death.

Selection of fiduciaries. 

Who is chosen to serve as executor and trustee often creates problems. For example, if a client wants both of his children to serve as fiduciaries but the children detest each other, it should come as no surprise when they can’t agree on anything during the administration of the estate or trust. Similarly, if the client chooses only one of those children, the other one may be resentful and hinder the sibling’s ability to
perform his or her job.

The court will show great deference to the testator’s selection of an executor and trustee and remove a fiduciary only in limited situations. Further, most testators do not want other beneficiaries challenging every decision made by the fiduciary, which only creates delays in the administration of the estate or trust and ultimately depletes assets. Thus, choosing a fiduciary should be given careful consideration.
Depending on the circumstances, it may be appropriate to name a close friend, bank or trust company over an immediate family member.

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