Unfortunately, you can’t absolutely prevent fighting over or a lawsuit about your will, the trust you create, or your assets (your estate). It is the nature of our legal system. A lawsuit can be filed by anyone. However, here are 12 tips to reduce the likelihood of litigation over your assets.
- Understand what heirs and beneficiaries typically fight about
- Don’t assume your family won’t fight
- Work with a well-qualified, experienced attorney
- Be clear about how assets are to be divided (especially sentimental items)
- Don’t bring your children or other beneficiaries to meet with your attorney
- Be open about your intentions
- Include a No Contest Clause
- Allow litigation expenses to be charged to the share of the beneficiaries involved
- Don’t add someone to an account unless you intend for that person to be a true owner
- Keep your estate plan (documents) up to date
- Pick the right trustee (trust) or executor (will)
- Make a succession plan for running the family business
Part 2 of this Article discusses Tips 7-12. See Part I of this Article for a discussion of Tips 1-6.
Tip 7: Include a No Contest Clause
If you either don’t want to disclose your plan to your family or believe that even with disclosure there will still be fighting, you may want to include a no-contest clause. It can be a useful tool to keep litigious-minded beneficiaries in line. A no-contest clause can take different forms, ranging from the loss of a contesting beneficiary’s significant share of the estate to the loss of a specific gift. It should have enough “teeth” to it so that the potential loss (whether a specific gift or a share of the estate) makes the beneficiary really think about if he/she is willing to take the risk.
Tip 8: Allow Litigation Expenses To Be Charged to the Share of Beneficiaries Involved
Another way to discourage litigation is to specifically provide in the documents that funds can be used to aggressively defend challenges to your estate plan and that the expenses can be charged to the share or shares of beneficiaries involved (whether directly or indirectly). Without such language, a court will generally not permit such an allocation unless there is a finding that the contesting beneficiary acted in bad faith in bringing the challenge.
Tip 9: Don’t Add Someone to an Account Unless You Intend For That Person to be a True Owner
Many people add a son or daughter to their checking account as a co-owner (aka a joint owner). Often, people decide to do so to enable that son or daughter to write checks and help out with managing money. But what people may not realize is that in most cases, adding someone to the account makes that person a full co-owner. And as a full co-owner, they have right to keep the money after the original account holder’s (the parent’s) death. That co-owner becomes the sole owner of the account. This can be a disaster. If there is more than one child, but only one was added as a co-owner, siblings can fight about whether the one child added as co-owner should keep the funds in the account or if all the children should share the money in the account.
Tip 10: Keep Your Estate Plan (Documents) Up to Date
You should review your estate plan documents on a regular basis, say once per year. It’s common advice to update your will, trust, and beneficiary designations whenever you have a major life change, such as marriage, a new child, divorce, or the death of a major beneficiary. But many things can impact your estate plan, and these things should be discussed. There can be changes in the law, changes in your wealth, and economic factors that warrant reviewing your estate plan with your attorney. If you don’t change your documents now and then, they probably won’t reflect your current wishes.
There’s another benefit to meeting with your estate planning attorney on a regular basis: Your continuing involvement can head off suspicions that you didn’t take an active role in your estate planning and were so influenced by someone else that your decisions weren’t really your own.
Tip 11: Choose the Right Trustee (Trust) or Executor (Will)
People often give too little thought to the selection of a trustee or executor. This is a mistake given the important role of a trustee or executor, and the decision should be made carefully. While there is no right or wrong answer, you should ask yourself key questions: Is the candidate a good fit to handle the type of assets held in the estate? Does the candidate have the right temperament and personality to deal with (and even get along with) your family? Is the candidate competent, honest, and professional? Is the candidate organized, hardworking, and a good communicator? Thinking through your selection and choosing the right trustee or executor can go a long way towards preventing litigation.
Tip 12: Make a Succession Plan for Running the Family Business
If one of the issue that will have to be dealt with upon your passing is the disposition of a family business, you should address that issue while you’re still around. It’s helpful for your loved ones to know which family members will be expected to be involved in the business after you pass. If this discussion doesn’t take place while you’re around and your loved ones find out after the fact, it may lead to discord and litigation.