What is the Best Estate Plan to Keep Family from Killing Each Other?

It’s not unusual for families to fight over inheritance, leading to prolonged legal battles and damaged relationships. The Ascent’s recent article, “How to Create a Will That Keeps Your Family From Fighting,” provides some tips on how to create a will that keeps your family from fighting.

Discuss your intentions beforehand. Parents need to discuss the objectives and intentions of their estate plans with their children. This lets them set expectations. You don’t have to reveal dollar figures or investment assets. Instead, the key is ensuring the children understand the rationale behind the will.

Splitting up unique assets. Dividing up unique property can frequently result in fights. You may have sentimental items that multiple family members have expressed interest in, or maybe a piece of property has sentimental value to one family member over the others. You may want to speak to family members beforehand to see if any items are particularly important to them. It’s crucial to be clear in your wishes and make sure that everyone is on the same page. You should also use specific language in your will that outlines who gets what and under what conditions.

Preserving inheritance for blended families. This can be even more complicated for blended families. It’s important to approach the division of your assets with sensitivity and thoughtfulness to avoid potential conflicts among family members. Parents with children from previous marriages should take extra care to protect those children financially because stepchildren can be disinherited once a parent dies. Separate wills for each spouse can add protection. There’s something called a “contractual” will” where each spouse agrees that the surviving spouse doesn’t have the legal right to execute a new will that disinherits the children of the deceased spouse. This is designed to ensure that each spouse’s assets are distributed according to their wishes and prevents the surviving spouse from making changes that cut other family members out of the will.

Creating a will that keeps your family from WWIII is a valuable process. Parents should be open about their estate plans with their children to ensure that they understand their intentions. Communication is vital when it comes to estate planning.

Reference: The Ascent (Aug. 15, 2023) “How to Create a Will That Keeps Your Family From Fighting”

Are You Ready for 2026?

You may not be thinking about Jan. 1, 2026. Any New Year’s Eve celebrations being planned now are more likely to concern Jan. 1, 2023. However, if your estate is worth $5 million or more when the first day of 2026 arrives, your estate planning should begin now. According to a recent article from Forbes, “Is 2026 An Important Year For Your Wealth?,” the reduction in the estate tax exemption will revert to the 2010 level of $5 million adjusted for inflation. It could go even lower. With federal tax rates on estates over the exemption level set at 40%, plus any state estate or inheritance taxes, planning needs to be done in advance.

Considering the record levels of national debt and government spending, it’s unlikely these exemptions will remain the same. Now is the time to maximize today’s high estate tax exemption levels to minimize federal estate taxes and maximize what will be left to heirs.

Your estate planning attorney will have many different strategies and tools to achieve these goals. One is the Spousal Lifetime Access Trust (SLAT). This is an irrevocable trust created by each spouse, known as the grantors, for the benefit of the other spouse. Important note: to avoid scrutiny, the trusts must not be identical.

Each trust is funded by the grantor in an amount up to the current available tax exemption. Today, this is $12.06 million each (or a total of $24.12 million) without incurring a gift tax.

This serves several purposes. One is removing the gifted assets from the grantor’s estate. The assets and their future growth are protected from estate taxes.

The spousal beneficiary has access to the trust income and/or principal, depending upon how the trust is created, if they need to tap the trust.

The trust income may be taxed back to the grantor instead of the trust. This allows the assets in the trust to grow tax-free.

Remainder beneficiaries, who are typically the grantor’s children, receive the assets at the termination of the SLAT, usually when the beneficiary spouse passes away.

The SLAT can be used as a generation-skipping trust, if this is the goal.

The SLAT is a useful tool for blended families to avoid accidentally disinheriting children from first (or subsequent) marriage. Reminder assets can be distributed to named beneficiaries upon the death of the spouse.

The SLAT is an irrevocable trust, so some control needs to be given up when the SLATs are created. Couples using this strategy need to have enough assets to live comfortably after funding the SLATS.

Why do this now, when 2026 is so far away? The SLAT strategy takes time to implement, and it also takes time for people to get comfortable with the idea of taking a significant amount of wealth out of their control to place in an irrevocable trust. For a large SLAT, estate planning attorneys, CPAs and financial advisors generally need to work together to create the proper structure. Executing this estate planning strategy takes time and should not be left for the year before this large change in federal estate taxes occurs.

Reference: Forbes (Oct. 4, 2022) “Is 2026 An Important Year For Your Wealth?”

How Do You Stop Family Fights Over an Inheritance?

More than two-thirds of all advisors surveyed by Key Private Bank said the hardest part of estate planning is navigating family dynamics, according to a 2019 survey. The sensitivities of simply talking about estate planning often present emotional challenges to putting a plan in place, especially when the family includes multiple marriages and blended families.

Advice is offered in a recent news article from CNBC, “Executor of a Family Estate? Here’s How to Avoid Infighting Over Inherited Wealth.”

Much of the problem, experts say, stems from poor communication. A dialogue needs to be open between generations that is a two-way conversation. In most instances, the older generation needs to invite the younger generation to get the ball rolling.

A lack of clarity and transparency can lead to problems. One example is a father leaving the family farm to his children, with a plan that also included money to help run the farm and legal documents to help the transition go smoothly. However, the children didn’t want the farm. They wanted to sell. Disagreements broke out between siblings, and the family was bogged down in a big fight.

Clearly Dad needed to talk with the children, while his estate plan was being created. The children needed to be upfront and honest about their plans for the future, and the issue could have been solved before the father’s death. The lesson: talk about your wishes and your children’s wishes while you are living.

After someone dies, they may leave behind an entire estate, with a lifetime of personal items that they want to gift to family members. However, if these items are not listed in the will, the heirs have to decide amongst themselves who gets what. This is asking for trouble, whether the items have sentimental or financial value. In fact, sentimental items often generate the most controversy.

When conflicts arise, the presence of a third party who doesn’t have emotional attachments and is not embroiled in the family dynamics can be helpful.

If the issue is not addressed before death, there are a few ways to move forward. An estate planning attorney who has seen many families go through this process can offer suggestions while the will is being prepared. There are facilitators or mediators who can help, if things get really rocky.

Heirs may wish to create a list of items that they would like to be reviewed by the executor. This option works best, if the executor is not a sibling, otherwise charges of favoritism and “Mom always liked you best” can spiral into family spats.

Some families group items into buckets of equal value, others set up a lottery to determine who picks first, second, etc., and some families literally roll the dice to make decisions.

Reference: CNBC (Nov. 12, 2020) “Executor of a Family Estate? Here’s How to Avoid Infighting Over Inherited Wealth”

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What is the Best Estate Plan to Keep Family from Killing Each Other?

Are You Ready for 2026?

How Do You Stop Family Fights Over an Inheritance?

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