Three Common Estate Planning Problems Waiting To Happen
Poor estate planning can result in your family fighting over your assets when you die. Perhaps nowhere is family strain and strife more obvious than with a will contest or a legal dispute as to who in your family gets what and when they can get it. Hawkins Elder Law provides you this overview of three common issues that you might face when not all of your family members are on the same page with your estate plan, and what you could do to protect against your family suing over your estate.
When Your Children Share In The Same Assets, Drama Might Ensue
Each of your children likely has different financial needs. Some of your children might be better off than others. You might create a timebomb if you designate all your children to jointly own your assets at your death with the majority of them controlling what happens to the assets. The children under financial strain that want money now might clash with other children that want to the assets to grow in a long-term investment strategy.
Suppose that you have transferred your home to your children in equal shares. One or more of your children might want to sell the home to obtain their share of the proceeds because they need cash now, while your other children might view a home sale as a big problem especially if they don’t need the proceeds and the home is situated in a buyer’s market.
One way of avoiding this dilemma is to specify in advance whether and to what extent your children can sell the home, which is really important if one or more of you anticipates living in the home. It is possible for your home to be held in trust for your benefit during your life and eventually for the benefit of your children at your death, where your trustee (the person who is responsible for managing and disposing of your trust assets) could liquidate the home as long as your conditions are met. Your trustee – whether that is you or someone else — could then distribute the proceeds to each beneficiary knowing that this is what you intended. Your trust could even have a provision where your trustee arranges for your children to buy out a cash-strapped child’s interest in the home if need be, providing that cash-strapped child money when it is needed without placing your other children’s interests in jeopardy.
Along these lines, another way of avoiding family strife is to avoid making multiple children share jointly in your assets, and to instead designate different assets for each of your children if this is possible. As part of the estate planning process, it would be normal for you to make use of a trust that controls distribution of your assets after your death. You could select which of the remaining assets would be held for the benefit of each of your children in their own sub-trusts. This way, if one of your children needs money, then income or principal could be distributed to them from their sub-trust at your trustee’s discretion, and this should not affect your other children’s interests in their sub-trusts.
One Of Your Child Beneficiaries Is Also Your Fiduciary, Creating A Conflict Of Interest
If one of your children acts as your fiduciary (attorney-in-fact, trustee, executor), then they have a duty to act in your best interests and, at your death, the best interests of your beneficiaries (e.g. spouse, children). If one of your children happens to be your fiduciary, then your non-fiduciary children might have a problem with your fiduciary child making decisions which might negatively affect all of the children’s interests as beneficiaries. For example, your non-fiduciary child might want jointly held assets allocated more conservatively then your other children want. If your fiduciary child has an aggressive risk tolerance, it can be difficult for them to make a decision affecting all children without their own bias getting in the way.
Sometimes children are not the best choice when it comes to being your trustee, executor or attorney-in-fact. This is especially important to take into account when family members that you have in mind to be your fiduciary are possibly irresponsible or inexperienced with managing finance or healthcare matters. In situations like these, you might want to hire a professional third-party fiduciary (e.g. trust companies, banks and certified public accountants) to make the call.
When You Disinherit Your Estranged Family Member But Don’t Make That Clear
If you do not leave an inheritance to your spouse or one or more of your children, then it is possible that they will challenge your decision by bringing a lawsuit after your death. On the surface, it might not be clear as to whether you omitted someone inadvertently or had done so on purpose. To the extent that your estate planning documents are outdated, this might lend itself to a provision appearing to exclude or include someone when this does not reflect your intent in the slightest.
It is possible for one or more of your family members to challenge your partial or complete disinheritance of them based on allegations of a perceived mistake or error in your estate plan. Estate litigation often involves a disinherited family member who argues that your trust or will should be interpreted to benefit them. The validity of your estate planning instruments could also be challenged based on allegations of fraud or undue influence. For example, suppose that you have a close relationship with one of your children who you designate to receive a larger portion of your estate at your death than the portions that will be received by your other children. It is possible that those other children – estranged or otherwise – might cry foul, such as by arguing that you did not mean to benefit one of your children at their expense.
For this reason, in order to avoid confusion and a potential estate contest, it makes sense for your intent in benefiting one child more than others to be crystal clear. Along these lines, if you want to disinherit your child, then you should use specific language which identifies which child is to be disinherited. Rather than a child’s disinheritance being implied, the trust should explicitly identify the disinherited child (e.g. My son, John Smith, whose birthday is January 1, 1950, shall not be a beneficiary of my trust).
It is also important to note that In Indiana, your spouse or your children might be entitled to a portion of your assets. For instance, your spouse is entitled to an elective share which can constitute a portion of your assets at your death that you left in your will to someone else. Your spouse and children also stand to receive a portion of your probate assets if you die intestate (without a valid will). Moreover, federal law prevents you from disinheriting your spouse as it relates to your 401(k) or employer plan absent your spouse’s consent. So, when you are trying to disinherit someone, you must take into consideration what the law allows you to accomplish to see if it is different than what you want.
Avoid Your Family’s Estate Planning Disputes By Getting Proper Estate Planning
At your death, do you want your children to fight over your assets? If you are like many, the answer is obviously “no.” Avoiding these calamities frequently necessitates the use of a trust containing specific instructions as to how your assets are managed and distributed. Fortunately, trusts can be customized to fit practically any need you might have – and can be carefully drafted to avoid any confusion about who receives what from you at your incapacity or death. At minimum, the more specific your instructions regarding the disposition of your assets at your death, the less likely your family litigates over your legacy.
For more than two decades, the attorneys at Hawkins Elder Law have helped countless clients with preparing estate plans that are tailored to their needs and which provide for the effective management and distribution of their assets. Founders Jennifer J. Hawkins and Jeff R. Hawkins are Board Certified Indiana Trust and Estate Lawyers, certified by the Trust and Estate Specialty Board. Reach out to Hawkins Elder Law today by calling (812) 268-8777 or by contacting us online.
About the Authors
Jeff R. Hawkins and Jennifer J. Hawkins co-author the Hawkins Elder Law blog with Thomas E. Hynes, a lawyer who is admitted in Pennsylvania, New Jersey and Florida with a background in estate planning and elder law.
Jeff and Jennifer Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers. They are also active members of the Indiana State Bar Association and National Academy of Elder Law Attorneys. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois.
Jeff is a Fellow of the American College of Trust and Estate Counsel and the Indiana Bar Foundation. He is also a member of the Illinois State Bar Association. He served as the 2014-15 President of the Indiana State Bar Association, and he is a registered civil mediator.
Hawkins Elder Law is one of the few elder law firms that Martindale-HubbellTM has rated AV Preeminent, with both of the firm’s lawyers (Jeff Hawkins and Jennifer Hawkins) also rated AV Preeminent.
More Information
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