Plan Now to Avoid an Inheritance Feud Later

How to Avoid an Inheritance Feud
How to Avoid an Inheritance Feud

For 15 years, Michael Smith's youngest brother didn't speak to their mother, nor did he utter a word to their father for the three years prior to his death from colon cancer this past summer. But he's got plenty to say now -- mostly, "Where's the money?"

Their dad cut him out of the will in 2008, and now he's fighting his two brothers over the $7 million estate, claiming that their father was mentally unable to make decisions back then and that he was unduly influenced by his older sons.

"This is family against family. It's sad," says Smith (not his real name). For him, it's not really about the money, but the fact that as executors of the estate, he and his older brother want to honor their father's clear wishes. "I had asked dad if he wanted to keep my brother out of the will, and he said it like three times: 'f--- him.'"

Smith has hired an attorney to handle the dispute. He adds, "My dad had to be hurt to remove him from the will, and it probably took him a long time to decide to do so. My brother and I can't disrespect his memory."

Fighting for the Cash They Were Counting On

Increasingly, the fabric of families is being torn apart over inheritance feuds.

"As the economy has gotten worse, there is less money to spread around, so feuding and disputing wills have increased," says Jean Gordon Carter, a partner with the law firm of Hunton & Williams.

Then too, points out attorney and certified financial planner Rial Moulton, many baby boomers have been counting on those inheritances to help finance their retirements, as they didn't do a good job of saving for themselves. Now, there's a bit of desperation in the air. "There are more feuds, and they are nasty," says Moulton, co-founder of Retirement & Tax Planning Specialists.

Also, people are leading lifestyles they can't sustain, says Ken Kamen, author of Reclaim Your Nest Egg: Take Control of Your Financial Future. "Kids run up bills they think they'll be able to pay off with their inheritance. When the money is bequeathed in a way they did not expect -- it went to a long-lost relative, charity or the cat -- the heir has a terrible problem."

Indeed, many children feel like they are entitled to their parents' money. "It's amazing how greedy folks can be with assets they didn't earn," says Carter.

The Emotional Dimension

Certainly, inheritance disputes are about the money, but often, they're also about a lot of other stuff. One source of conflict becoming more common involves blended families. There are a record number of second marriages now in which spouses bring kids from previous marriages. How much should those stepchildren or the second spouse receive?

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"We see a lot of the sons- and daughters-in-law stirring the pot at the death of a parent," says Moulton. "The kids might not want to fight, but their spouses force them into it." The emotionally charged atmosphere of death can bring up old feelings of sibling rivalry, and some children will try to get in death what they feel they didn't get during the parent's lifetime.

A chief cause of division though, is often a lack of estate planning, and in some cases, poorly written estate planning documents. Family fights at an already heart-wrenching time can be avoided if you don't create surprises. A good place to start is with a conversation.

"Talk to your beneficiaries while you're alive to set the right expectations and to make them aware of their responsibilities and proper management steps when they do inherit. Tell your kids that if they fight later, you'll come back to haunt them. That's what I did, and my children laugh about it, but it makes the right impression," says Robert Fragasso of Fragasso Financial Advisors, who specializes in estate planning and managing inheritance funds.

Here are four pieces of advice for bequeathers -- and one for heirs -- to help avoid conflicts in the wake of a death.

1. Make a Will.
Nearly two-thirds of adult Americans don't even have a simple will, says Danielle Mayoras, attorney and co-author with Andrew Mayoras of Trial & Heirs: Famous Fortune Fights! Sure, you may be able to write a will yourself. But given the magnitude of what you're doing, it's worth getting an estate planning attorney's help. Also, avoid shortcuts like using joint bank accounts instead of a will or trust, or expressing wishes through a letter or verbally, she says.

Know too, that your documents will need updating to account for life events like marriages, divorce, new children or starting a business. And you would be wise to explicitly state who should receive personal items like family heirlooms. "We have seen long, expensive battles over mom's wedding ring or dad's guns. Address those personal and sentimental items in the plan," says Moulton.

2. Keep It Simple. "Don't come up with a plan that is so convoluted that it can't be executed properly and understood by those affected," says Gordon Carter. Also, having too many co-trustees is typically a nightmare when it comes time to handle parent's affairs, especially when children live in multiple states. "Name one [executor], with a successor plan in case that child cannot take on the role when the time comes, and communicate in advance why you are making these choices," advises Lynn Ballou, a certified financial planner with Ballou Plum Wealth Advisors.

3. Be Aware of Assets That Pass Outside of Probate. For example, if one child has their name on a parent's bank account, even if it's only to accommodate the elderly parent, the presumption is that the child inherits the account. Unless that is the parent's intent, the parent should instead give the child a power of attorney over the bank account. That prevents the account from passing a greater share of the parent's estate to that particular child, explains Rett Peaden, an attorney with Davis, Matthews & Quigley.

4. Leave Emotions Out of It. "Don't settle old scores from the grave, and don't try to control your kids from the grave by leaving

provisions in your will," says Kamen. "A will should not be used to make up for something you didn't give your children during [their] childhood," he adds. Know that litigation may occur when there is unequal treatment of siblings or unequal treatment of children from different marriages, warns financial planner Jeanne Brutman.

5. Get Help to Defuse a Bad Situation.
If you're an heir in the middle of an inheritance mess, and it's clear that the parties are unable to solve the situation among yourselves, call on professionals: accountants, attorneys, financial planners or even a therapist. "A therapist might be the right person to keep you from refighting battles of your childhood," says Kamen. "Many times these feuds have their roots in the 'mom loved you better' fights from long ago. Before you tear apart your family, get help."