Inheritance litigation is on the rise as was indicated in a prior post that can be found here it can be helpful to discuss inheritance issues within the family. This can help reduce the amount of inheritance disputes and minimize the emotional and financial costs of Probate and Trust Litigation contest proceedings.
Andy McKenzie and Mike Riedel Financial Advisors with McKenzie & Riedel Investment Consulting Group of Wachovia Securities have written an interesting article about discussing family inheritance issues in advance and a smooth transition of wealth without inheritance disputes. Their article can be found here with portions of it below.
A Family Conversation About Wealth and Inheritance
Talking to your children about your finances is about more than telling them the location of your most important documents. It’s also about imparting responsibility and respect for your values regarding money.
As parents grow older, they must eventually face the challenge of talking to their adult children about wealth, inheritance and the financial implications of their mortality. Unfortunately, ‘‘many parents postpone (the conversation) because they think they have time,’’ says Dr. Eileen Gallo, a Los Angeles psychotherapist who counsels families about the emotional aspects of wealth.
That can be a mistake. Communicating openly with your kids won’t solve every problem, but it can reduce family conflict and provide you with more options for empowering your children to act on your behalf, should it become necessary. Open communication can also help prepare your loved ones to become responsible inheritors. It may also help avoid future will or trust contest litigation in probate court if the family all understands the plan and is on the same page.
A Family Meeting of the Minds
Annual family meetings without waiting until it is too late can be very helpful. Family meetings also enable parents to clarify their intentions related to any possible misunderstandings that might arise from disproportionate splits of an estate. This is especially important when remarriages and second families are involved, or when parents want to name charities or unknown entities as beneficiaries. ‘‘If there are no surprises, you may avert a legal battle later.’’
Probate Court battles can be both time consuming and expensive. Although not the typical family circumstances an extreme example of what can happen when things are unclear or each of the relatives are not on the same page is the Anna Nicole Smith case which was argued before the Supreme Court earlier this year. (Her legal name of Vikie Lynn Marshall v E. Pierce Marhall) She married a billionaire substantially younger than herself and has been fighting his son in probate and bankruptcy courts for several years. For information about this case click here. In more typical family situations it may be the siblings that are fighting over the inheritance and that may create deep family conflicts for generations as well as consume large portions of the estate. When needed inheritance litigation attorneys can be of great help to families and beneficiaries who are not receiving what they are legally entitled to but with better planning and knowledge within the family of what the intent is and avoiding the surprises these matters can be avoided and the family can remain more harmonious which can be even more important than the money.
Conversation Points
Begin your family meeting with a discussion of the basics. You should identify your personal representative and specify where you keep your will and other important documents and account statements. A personal representative is allowed to choice any attorney they chose to assist with the estate administration regardless of the direction of the will. If it desired for them to have a specific attorney assist they should know that and possibly have them meet so they are comfortable with one another in advance.
Although it’s not important that everyone know all the details of your financial situation, it is imperative to make at least one family member or beneficiary aware of the location of important records. Also someone trusted should have acess. If one person is the sole person on a safe deposit box a court order is sometimes required and at times the key is not even available and it needs to be drilled.
Some of the specific issues you may wish to discuss in this regard include the following:
1. Have you granted someone a durable power of attorney, a living will, and health care surrogate? Where are the documents located? Why was that person chosen?
2. Do you have a safe deposit box? Where is it located, and where is the key and the list of contents?
3. Does your retirement program have a death benefit for survivors?
4. Have you established any trusts, and for what purpose?
5. How have you arranged to handle any applicable estate taxes?
6. Have you shared the names and contact information of your financial, tax and legal advisors with your children?
A Trusted Strategy
When talking to your adult children about wealth, ‘‘it is important to provide a very practical financial education on managing your assets.’’ One approach is to introduce your children to a trusted advisor who can help them understand their financial options and encourage them to make choices that support their long-term interests, such as retirement planning or education planning for their own children.
Many parents use trusts to transfer assets to their children or grandchildren. A trust may be used temporarily to hold and manage assets until a young adult matures. Other parents choose to set up a trust for life to protect their children’s assets from creditors, divorce settlements and estate taxes. It’s important to talk about the trust with one’s beneficiaries and explain its purpose.
Wealth and Values
One option for parents seeking influence is an incentive trust, which enables parents to establish terms governing the distribution of funds. An incentive trust can provide financial motivation for adult children to excel and to meet certain goals. Still there can be ‘‘a fine line between adding too many constraints and providing positive incentives for the beneficiary to be a productive member of society.’’
Regardless of how you plan to transfer your wealth, raising children who can identify their own passions and interests in life is the best way to ensure responsible money habits. ‘‘Trusts and inheritance decisions should provide enough money to encourage productivity, but not so much money that your adult children do nothing.’’
Work with your attorney and your financial advisor to determine what funding vehicles are appropriate for your goals. The benefit, time and cost of planning in advance can be invaluable versus the problems that can arise if the assets are difficult to locate or an extended inheritance lawsuit exhausting estate assets and tearing the family apart.