By JUDD MATSUNAGA, Esq.
If keeping peace in your family is near the top of the list of estate planning goals, you’re not alone. Every parent hopes their family will remain close even after they are gone. Unfortunately, the courts are full of brothers and sisters fighting over their parents’ estate, often dividing the family for generations.
Will your family fight after you are gone? That’s a scary thought, especially if a major family squabble that divides your family is not what you want to be remembered for. Sibling disputes can result in lengthy and expensive legal actions. Perhaps worse, the pain, bitterness and resentment from this kind of division may never go away. But with some careful planning by the parents, sibling disputes and family division can usually be avoided.
Side note: Perhaps the easiest way to keep your children from fighting over your money and property after you’re gone is to leave nothing for them to fight over, i.e., spend all your money while you’re alive (some Rafu readers are really good at this). The more you have at your death, the more your children will have to fight over. Your will or trust is just a contingency plan in case you are unsuccessful at spending all your money during your lifetime.
As an estate lawyer, I can’t guarantee your family won’t fight after you’re gone. However, I can help you increase the odds that your family will keep getting together for New Year’s Day or Thanksgiving after you’re gone. There are a number of ways to maximize the possibility that your family will remain conflict-free after you die. In this article, I have three tips to help you get that done: (1) give equally; (2) give equitably; and (3) have a family meeting.
(1) GIVE “EQUALLY”
If your goal is to reduce conflicts between your children, then you should probably divide your estate “equally.” Chances are their whole lives your children have heard you say, “I love all my children equally.” Therefore, it’s quite likely that your children might assume they will all get an “equal” share of your estate. So, the simplest solution is to divide whatever you have equally among your children.
The truth is – your children might judge how much you love them based on how much you leave them. If fair and equal is your goal, remember that some assets won’t pass through the trust (or probate), such as life insurance policies, retirement accounts, and some investment accounts. Accordingly, you’ll need to change the beneficiary designations so that things are equal.
During your lifetime, parents can make gifts to children or directly pay for things like a college education or family vacation. But in death, for family peace and harmony, it’s important to think about keeping things equal because you won’t be around to explain things after you’re gone. Instruct your successor trustee to sell everything and then distribute the proceeds to your beneficiaries equally.
Also, parents should never divide an indivisible asset in hopes that it will bring their heirs together. Give the house, the vacation property, the land or the business to just one child and make up the difference with a monetary share for the others. Or stipulate that all of the assets be sold and the proceeds divided equally. If one child really wants an asset, e.g., the family house, he or she can buy the others out.
In addition, your children might be expecting to inherit a certain amount of money or property. They may even be making decisions right now based on those expectations, e.g., whether or not they can afford a new car, go on a vacation, or save for their future long-term care needs, e.g., to purchase long-term care insurance.
(2) GIVE “EQUITABLY”
Although the standard advice among experts is to divide your estate equally between your children, there are many other reasons why parents might choose another option. According to a study from Merrill Lynch Bank of America/Age Wave, more and more parents with more than one child are open to leaving different sums to each child, depending on the situation. (Source: www.considerable.com/money/inheritance. Sept.24, 2020)
In fact, the research found that two-thirds of Americans believe that under certain circumstances, an uneven split is the right way to go. An equal split might have been fair a generation or two ago when parents died in their 60s and 70s. But now, parents are living well into their 90s and even 100s. An equal split doesn’t seem quite fair when the vast majority of the caretaking responsibility (especially those latter years) falls on one child.
In the Merrill Lynch Bank of America/Age Wave study, two-thirds said a child who steps in as primary caregiver for an aging mom or dad deserves to inherit more than other siblings. Also, nearly one in four of those surveyed said a child who has children of his or her own deserves more money than a child who does not have kids.
Other studies have echoed this trend. A 2015 academic paper published by IZA Institute for Labor Economics, based on data from a large government study, found that among Americans at least 50 years old who had a will, the percentage who left unequal inheritances to their children had more than doubled from 16% in 1995 to 35% in 2010. “How unequal?” you ask. That’s up to you. See your estate planning attorney to ask for help.
Another possible exception to the rule of an equal split is if there’s an estranged child that you want to disinherit. This is legally permissible, i.e., there’s no law that says you have to give to all your children equally. However, equally is what happens if you die “intestate” (without a will or trust). If that’s your wish, make sure you seek legal advice to avoid legal challenges by the disinherited child.
Some other possible exceptions are: (1) you have a child with a gambling or drug addiction; (2) you have a child that has demonstrated they are extremely irresponsible with money; or (3) you have a child on Medi-Cal or some other public benefit program in which inheriting money might disqualify them for government assistance.
In that case, you probably don’t want to give money to that child directly. Your estate planning attorney can help you set up a special trust in which that child’s share is placed into a separate trust, e.g., a special needs trust, so the child can’t lose it or be disqualified from a public benefit program. Sure, you left that child an “equal” share, but a different, responsible child or professional fiduciary will hold the money in a separate trust.
(3) HAVE A FAMILY MEETING
The “traditional” estate planning model was to reveal the estate plan upon death, e.g., we have all seen the movies where the family gathers to hear the reading of the will. This, however, will often lead to fighting over the parents’ estate in court. We all know that once you bring lawyers into things (especially litigators), the cost and conflict escalate quickly. One of the best weapons you have against conflict, in all areas of life, is communication.
There are times when the worst thing you can do is “blindside” a child after death. If they aren’t inheriting as much as they expect, it’s only fair to let them know the truth before you die. If you are leaving unequal shares, many estate planning attorneys describe “communicating the plan” as the final step in the estate planning process.
So the new paradigm is to have a family meeting after the estate plan is finished. When they understand your reasons for making certain decisions and they hear them directly from you, you avoid one sibling blaming another. By conducting a family meeting, the potential for misunderstanding, family objections, confusion, delay and loss of control is greatly reduced.
So once you have figured out how you want your money and possessions distributed after you die and you have incorporated those directions in your estate plan, it’s time for a family meeting to communicate your intentions to your children. The family members and fiduciaries will have an opportunity to not only hear what the plan is, but will also have the opportunity to ask questions of the client and/or professional advisors.
Experience suggests that ONLY the children/heirs be present for the family meeting. This is not just my experience but is found in nearly any book or guide on dividing. Sibling rivalries or tensions are hard enough to deal with in the face of loss; adding personalities and people perceived as “outside the direct family” participating in choices can create tensions and conflict easily avoided by keeping it as only the heirs.
In-laws are often considered outlaws. Spouses change the equation when dealing with trust and estate issues, especially if they are “whispering in the ear.” When there is unresolvable disagreement, think about bringing in an outside professional — whether a banker, financial planner or lawyer. The third-party expert acts as the rational person in the room who doesn’t have a dog in the fight.
The attorney will be the interpreter. Having a third-party professional communicate the intent and mechanics of the plan to the family members and fiduciaries in the presence of the client is a powerful tool to help avoid family bitterness and resentment. A family meeting is designed to flush out, and to deal with, potential family problems and disputes in advance.
If one family dispute can be avoided by careful planning, the family might save hundreds of thousands of dollars in legal fees incurred in an unnecessary will or trust contest. Be sure not to let emotions get in the way. Quite often, decades-old family arguments come up and 50-year-old sons and daughters are 12 years old again. For that reason, having skilled advisers who know how to ethically and effectively mediate and resolve such problems is essential.
In conclusion, I believe it’s the responsibility of every parent to do what they can to avoid dividing the family. Make sure the estate is divided in a fair and equitable way. Talk to each child about what they feel they need and deserve. This is never an easy conversation, but it’s a necessary one. And the best way to make sure there are no surprises (when it’s too late to explain) is a family meeting.
Judd Matsunaga, Esq., is the founding partner of the Law Offices of Matsunaga & Associates, specializing in estate/Medi-Cal planning, probate, personal injury and real estate law. With offices in Torrance, Hollywood, Sherman Oaks, Pasadena and Fountain Valley, he can be reached at (800) 411-0546. Opinions expressed in this column are not necessarily those of The Rafu Shimpo.