Estate Planning 101: Avoiding Family Conflict

Estate Planning 101: Avoiding Family ConflictHow many times do you hear about family or adult children fighting over inheritance after mom and dad are gone?  It happens more often than not.  For whatever reasons, mom and dad fail to take into account the complexities of the situation revolving around their remaining children and the legitimate claims by others.  What’s worse is that most of these family squabbles could have been easily avoided with some basic estate planning.  Let’s look at a few scenarios:

1-     Mom & Dad owned a tool and die company for 50 years and have three children.  The oldest has worked diligently at the family business for 25 years, while the other two younger children pursued successful careers outside the business in law and medicine.  After mom and dad passed away, they leave the tool & die business to the oldest son and unfortunately there are very few other family assets.  Regardless of the fact that the oldest son worked for 25 years at the shop, the younger siblings resent him receiving 100% ownership of the family business.  Conversely, the oldest son feels no obligation to give an equal share to his sister and brother in an operation they have never participated in.  Looking back, one solution here would have been to have mom and dad purchase a permanent life insurance policy on themselves.  By naming the two younger children as beneficiaries, they would immediately have provided a cash inheritance equal in amount to the value of the business.  This way the oldest son gets what he feels he deserves without any financial conflicts with his siblings.

2-     John is a 55 years old widower with two adult children whom he loves very much.  John decides to marry  a much younger woman named Barbara.  Unfortunately, John’s two children are not particularly fond of Barbara or her children from her prior marriage.  After 15 years of being married to Barbara, John’s health is terminal and the family is beside themselves.  Upon his death, his estate plan calls for most of his assets to be placed in a trust for the benefit of his children from his first marriage.  The majority of these assets are in real estate properties that have been in the family for decades.  The children do not want to sell these buildings and summer homes any time soon as the rental properties provide tremendous income and the vacation homes have sentimental value beyond any sales price.  But they know Barbara, as his legal wife for the past 15 years, will want her fair share of everything once dad is gone.  And rightfully so, she is legally entitled to it, but the children cannot afford to buy her out.  Looking back, one solution here would have been to have John purchase a permanent life insurance policy on himself while he was healthy and name Barbara as the primary beneficiary.  This way his children could retain control of the family properties and she could receive her fair share of his estate with no malice attached.

3-     Nick & Linda are young doctors and are married for 10 years when Linda suddenly gets sick and dies.  They have three children and one million dollars in life insurance each.  Fortunately, Nick moves on in life and five years later marries his second wife Carol.  Carol insists that Nick name her as his primary beneficiary on both his life insurance policy and brokerage accounts.  Nick agrees because what are the chances of him dying, right?  Tragically, a few years later, Nick is killed in an automobile accident working late one night.  Not only do his children suffer the loss of both parents, but because Nick failed to plan properly, they are effectively disinherited of almost all of their assets to Carol.  Whether Carol is capable of doing the right thing is immaterial, all of Nick’s money is hers legally and a fight is imminent between her and the children’s next of kin.  Looking back, one solution here would have been to have Nick purchase additional life insurance on himself while he was healthy and name a Trust as the primary beneficiary for the benefit of his dependent minor children.  Updating his will and/or his revocable living trust would have been essential as well.