How a perfectly crafted estate plan can go wrong

How a perfectly crafted estate plan can go wrong

Your estate plan can work technically. And it can work practically. But if it doesn’t work emotionally, it may not work at all.

Jordan M. Atin knows a thing or two about estate plans that don’t work. As a Certified Specialist in Estates and Trusts Law and Senior Associate Counsel to Hull & Hull LLP, one of North America’s largest estate litigation firms, he spends plenty of time helping clients dispute what are “well-crafted” estate plans. The co-author of a book on the subject, The Family War – Winning the Inheritance Battle, Jordan shared his insights with T.E. Wealth consultants at the recent T.E. Wealth Advanced Planners Conference.

“When you think about it, a will is the last thing a parent says to their children. Many children will interpreted the will as expressing how the parent feels about them – whether they are a source of confidence or distrust, pride or disappointment,” explains Jordan. To illustrate, he uses the following example.

A mother with three grown children wants to treat all three children equally through her will, dividing it in three equal shares However, one of the children, Bobby, has never been very responsible and she is concerned about him wasting the money. To address this concern, Bobby’s share will be put in trust. Her first born, Michael has always had her confidence so she decides he will make a good executor and makes him the trustee of Bobby’s share. Technically, the plan is sound. Practically, the plan will work. But emotionally, this plan has the potential to be a disaster and here’s why.

When children read a will, they tend to see it as reflection of their role in the family. Michael reads the will and thinks to himself that he is trusted and favoured; Mom put him and charge and he is going to protect her wishes. Bobby thinks that he is being treated like a baby; that Mom never trusted him and now he will have Michael bossing him around again. Jane, their sister, finds herself put in the middle of her two brothers again and wonders why would her mother do this to her?

In many families, the presence of the parent has kept family relationships on an even keel but once that parent is gone, children can use the estate as a last chance to right what they perceive as past wrongs. In Jordan’s experience, children justify disputing what is laid out in the will in two basic ways:

The will is, or is not, what the parent really wanted; and/or The will is not fair.

In the above example, Bobby thinks the will isn’t fair whereas Michael believes he has to defend the will because it is “what Mom wanted.” And although the estate plan is sound, it’s not all that difficult for Bobby to make a legal challenge. There is only a small cost involved to initially challenge a will and all he needs is a legal hook. For example, if Mom was old and depressed, and Michael lived nearby, Bobby can challenge that Michael had undue influence over their mother’s wishes. As Jordan points out, the majority of these disputes get settled before going to court but a typical will challenge through the courts will cost the challengers and defendants about $250,000.

So how could all of this be avoided? When developing an estate plan, Jordan recommends that you really need to think about how your beneficiaries will interpret your wishes. If any child is to be treated differently than the others, all children need to hear this news from the parent rather than reading it in the will. Disputes usually arise when expectations are not met so parents need to manage estate expectations when they are alive. And if something is likely to be contentious, parents are wise to document their rationale or have their request tape recorded by their lawyer.

According to Jordan, some areas that commonly give rise to disputes include:

Naming one child as executor and/or power of attorney. Other siblings can choose to challenge everything the executor and power of attorney does, making this person’s life miserable. A third-party may be a better choice.

Use of trusts to control after death. Trusts can often cause more issues than they resolve. In the above example, if Mom really wanted to treat all children equally, she would give Bobby the money without any strings attached.

Emotionally-charged property such as cottages. Jordan commented that advisors have yet to come up with the perfect solution for properly dealing with these. Sometimes, the safest way is to sell the cottage and let siblings use the proceeds to buy their own.

Unexpected charitable gifts. In Jordan’s experience, charities fight as hard as any living litigant for their promised share of an estate. Make sure other heirs are aware of these bequests.

If you anticipate potentially contentious issues arising from your estate plan, be sure to discuss your concerns with your T.E. Wealth consultant. He or she can help you evaluate your current estate plan and recommend strategies for minimizing the potential for problems.

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These articles are for general informational purposes only. Please obtain professional advice before taking any action based on this information. No endorsement or approval of any third parties or their advice, information, products or services should be implied by any references to third parties contained in any article. Trademarks cited in these articles are the respective properties of their owners.

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