By Jason B. Miyashita
A poorly written estate plan can be easily challenged and can cause irreparable splits among heirs. This article offers suggestions on how to make your estate plan dispute proof and how to prevent a family schism after you die.
What do Howard Hughes, Leona Helmsley and J. Howard Marshall (of Anna Nicole Smith fame) have in common? All had estates that were hotly contested by named or would-be beneficiaries. In fact, disputes over a last will and testament (a “will”) or an estate plan are common and can cause permanent rifts among family members. They can also cost the estate lots of money.
While it is impossible to completely prevent any dispute of your estate, you can take certain steps today that can anticipate and forestall challenges after you die. Consider these useful and time-proven strategies for minimizing potential conflict over your estate.
Choose an executor or trustee wisely
The standard choice for executor — an oldest or nearest child — may not always be the best. If that person is also a benefactor of the estate, there can be a conflict of interests. It can also create resentment among other family members. If your estate is large and your family prone to conflict, you should consider appointing a trusted outsider who is not a beneficiary of the estate, a professional trustee who has the time, expertise, impartiality, continuity, administrative skills and resources to properly manage a trust. Professional trustees can make decisions without self-interest and independently referee on inheritance disputes.
Keep account beneficiaries up to date and in sync with your will
Some financial assets, such as IRAs, 401(k) plans and insurance policies, let you name beneficiaries. These beneficiary designations take precedence over designated beneficiaries named in your will, meaning that the assets are distributed to the named beneficiaries of the account, not the beneficiaries named in your will. Make sure your beneficiary designations are in sync with your current will and your intentions. Otherwise, you could unintentionally end up leaving much more — or less — to some beneficiaries than others, fomenting resentment from the outset.
Think through a distribution method: per stirpes vs. per capita
In addition to naming principal heirs, your estate plan should also name contingent beneficiaries — those who inherit in the event a principal beneficiary dies before you do. The two most commonly used distribution methods are called per stirpes and per capita. With a per stirpes distribution, the primary beneficiary’s closest descendants receive the share of the estate that the primary beneficiary would have received had he or she been alive. Under a per capita distribution, if a primary beneficiary predeceases you, his or her share is split among the other primary beneficiaries, not his or her descendants. Whether you choose per stirpes, per capita or a different distribution method, the important point is to think thoroughly through these second-tier distributions and make sure they are clear and express your wishes.
Consider using a living trust instead of a will
While both wills and living trusts are legally recognized structures for distributing an estate’s assets, a living trust offers a notable benefit when it comes to preventing challenges: It avoids probate. Unlike a will, there is no formal opportunity for a disgruntled beneficiary to challenge a trust, since the trust is not admitted to probate. This makes it harder to get into court with a trust challenge. What’s more, challenges to a trust present a higher hurdle for a would-be trust challenger than a will, reducing the likelihood of success except in cases of clear fraud or forgery.
Ask family members for their input
Most estate disagreements involve family members, and most disagreements are over the distribution of possessions. While major assets are typically liquidated and distributed according to the estate’s terms, smaller possessions are often divided among family members. Many have sentimental value for certain individuals, creating lifelong resentments if they are appropriated by another. The best way to forestall such battles is to simply ask family members what items they specifically cherish, then include a list of such items and who you wish to have them with your will. If two heirs covet the same item, you can resolve the conflict before it happens. And if the items in question carry a high monetary value, you can always specify that family members be permitted to “buy” them from the estate.
Preventing a disagreement, costly challenge or family rift can be just as important as who you name as beneficiaries. Let me work with you and your legal advisor to make sure your estate plan minimizes the potential for dispute. n
— Jason B. Miyashita is senior investment management consultant and vice president – Wealth Management and the Asia Pacific Group at Morgan Stanley. He can be reached at [email protected].