Monday, December 30, 2019

Reducing potential family conflicts


Even a close family can have quarrels in the estate planning process.
Dec 9, 2019 @ 9:32 pm By Bloomberg Share
The Internal Revenue Service recently announced that in 2020, the first $11.58 million of a taxable estate is free from federal estate taxes by virtue of the new federal estate tax exemption. As a result, a vast majority of estates will not have to pay federal estate taxes. If estate taxes are now less of a burden, what is the biggest issue facing estate planners today?
Last January, TD Wealth conducted a survey at the 53rd Annual Heckerling Institute on Estate Planning and asked the attendees a variety of questions regarding estate planning. For the second consecutive year, family conflict was identified as the leading threat to estate planning.
Even a close family can have quarrels and confrontations, but these conflicts tend to be more prominent within a blended family. A blended family can result from multiple marriages, children from a current or former marriage or children involved in multiple marriages. Statistics indicate that there are more “blended families” in the U.S. than ever before.
According to the last U.S. Census in 2010, 16% of children lived in a blended family. Probably more astonishingly, the divorce rate for those Americans over the age of 50 has doubled in recent years, even though the overall divorce rate nationwide has declined. This is known as gray divorce. In fact, today, one of every four people going through a divorce in the United States is 50 or older.
increase in family conflicts
The increase in blended families has led to an increase in family conflicts. The key to any conflict resolution is open and honest communication. This is particularly true when it involves a family. In many situations, it is best to explain a proposed estate plan to the family. If anyone objects, actively listen to their point of view and try to be empathetic to their position.
In the end, maybe a compromise is in order, or, if no changes are made, at least the family member had a chance to air their grievances.
So how can conflicts within a blended family be minimized? One potential solution could be the prenuptial agreement. A prenuptial agreement is executed before marriage and basically clarifies the financial rights of each spouse in case of divorce or death. Prenuptial agreements are particularly relevant in second marriages, especially when there is a disparity in age and wealth between the soon-to-be-married individuals.
But not every married couple in a blended family has a prenuptial agreement. And even if they do, blended families can face family conflict in estate planning in myriad situations. To illustrate, suppose Harry and Wendy are both married for the second time and each has two children from their prior marriage. Further assume that Harry’s will provides that his entire estate shall go outright to Wendy when he dies. If Harry dies first and leaves his entire estate to Wendy, what is to stop Wendy from revising her will so that she leaves her entire estate to her two children? Then Harry’s children would end up with nothing. The following illustrates ways in which that conflict between Harry and Wendy’s family can be mitigated.
• Communication: In a perfect world, if Harry really wants to leave everything outright to Wendy, he should explain his reasoning to his two children.
• Minimize a contest: One way Harry can minimize the possibility of a contested will is to insert a “no contest” or “in terrorem” clause in his will. This clause provides that if a named beneficiary initiates any proceeding to contest the validity of the will and loses, then such beneficiary shall forfeit his or her inheritance and shall be treated as predeceased.
• Revocable living trust: Harry might also consider using a revocable living trust as a means of avoiding probate. This would deny his children the golden invitation to object to his estate plan.
• Compromise: Perhaps a better solution is to craft an estate plan that benefits Wendy and Harry’s children. This could be accomplished by giving Harry’s children a partial outright distribution when Harry dies with the remaining estate going to Wendy. Another option is to create a trust for Wendy’s benefit but have the remaining trust assets go to Harry’s children when Wendy dies. A final option is to create a trust that: (1) benefits both Wendy and Harry’s children and (2) is structured so that the assets are protected and are beyond the reach of their future creditors.
Estate planning can be particularly challenging for blended families. These are some of the techniques to consider, however, that can help reduce potential family conflicts.
In the end, an experienced estate planning attorney should be hired to orchestrate the estate planning process and try to altogether avoid, or if necessary, resolve potential conflicts.
Raymond C. Radigan is head of private trust at TD Wealth.

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