8 Tips to Avoid Nasty Estate Surprises

Recession and more-complicated family relationships combine to boost feuds over estate provisions.

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Combine the worst downturn since the Great Depression, mix in a steep drop in stock prices, and garnish with the disappearance of trillions of dollars in home values. Voilà! You have just stirred up the recipe for a surge in estate litigation and intrafamily feuding.

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"I think we have definitely seen an increase in family squabbles and a lot more people wanting to contest wills," says Adam Gaslowitz, an estate attorney in Atlanta. The recession also has led to reduced asset values for stocks and real estate, making it harder to split the pie and reach amicable settlements. "I also think that the recession may be used, perhaps unconsciously, by some children to wrestle control of assets away from aging parents," Gaslowitz says. Some children may feel that it's better for them to manage their parents' assets in such troubled times. If there's any silver lining to the downturn, he observes, it's that "financial difficulties may make it harder for people to afford such a legal fight."

Steven K. Mignogna, who practices estate law in New Jersey, says there's been a sustained increase in contested estates during the past 20 years. He says that generally we are more litigious, but it's also true that the volume of wealth transfers has picked up in our aging society. Lastly, he notes, families have become more fragmented, which leads to more complex bequests and more potential for family conflict. "In the last year or two, I have seen an increase of perhaps 10 to 20 percent," Mignogna says. "It is difficult to determine if that increase is attributable solely to the economy, or to the trends from the last 20 years. . . . I am sure that the economy is a factor."

Marc S. Bekerman, an estate attorney on Long Island, distinguishes between estates contested in probate, on grounds of validity, and those involving accounting or oversight issues by trustees and executors. Probate litigation is up, he says, because of the economy, longevity, and increased family complexity, including more second and third marriages, children from multiple households, and the like. "I think much of the accounting litigation is due to the fluctuations in the stock market and people expecting large returns in both income and principal."

Here are steps estate experts advise clients to take to minimize the chance that their wills might trigger legal disputes:

1. Get a good lawyer. If you ask an estate attorney what's needed for a solid will, you will most likely be told to hire a solid estate attorney. Consider using an attorney who does not do legal work for family members and others likely to be in your inheritance plans. For example, if you used an attorney also used by one of your four children, and that child fared better in your will than the others, the will could be "tainted" by the child's relationship—and thus be more vulnerable to legal challenge.

2. Pick the right executor and trustees. Anticipate family friction, and make sure you don't appoint to key positions relatives who can't get along. "If you are concerned about conflict among your heirs," Gaslowitz says, "it is usually best to appoint a professional fiduciary like a bank to manage your affairs after you are gone."

3. Talk about it now. Difficult as it may be, try to sit down with family members before your will is drafted. Inform them of your intentions. This may not only calm sensitive egos but also establish your intent about how you wish to bequeath your assets. Steve Hartnett is a San Diego estate attorney and associate director of education for a legal group called the American Academy of Estate Planning Attorneys. "Probably the most important thing in avoiding family disputes is to make sure you communicate the details of your will to family members," he says. "Estate lawyers need to help create safe environments for families to have difficult conversations instead of just creating surprises in the estate plan that will cause a family to fight after the death of the family member," Gaslowitz adds. Otherwise, he says, "you might as well just leave the estate to the lawyers in the first place and save yourself the fight."

4. Know state laws. One compelling reason to hire a strong legal adviser: Estate laws vary significantly by state. Going through probate can be relatively painless in some states. But in states with arduous probate rules, it might be advisable to create a trust and bypass probate. "All other things being equal, probate is better to be avoided," Hartnett says.

5. Make your intentions known early and often. "Confirm the estate plan over time," Mignogna says. "It is more difficult to invalidate multiple wills than to invalidate one will. If a person leaves three wills over several years, and those wills are consistent, the challenger will have a much more difficult claim." Hartnett likes trusts for the same reason, especially when trusts have been modified over time to reflect changed circumstances and altered bequest plans. "If you make a trust-based estate plan at the age of 50, and you live another 30 years to the age of 80, it becomes more and more difficult over time to contest that estate," Hartnett says. If an estate is contested based on claims that someone did not have mental capacity, "you have to peel that back layer by layer" and challenge individual trust amendments.

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6. Make sure title to your assets is clear. Often, aging parents decide that they need help with their finances and will provide a child with access to bank and investment accounts. Setting up such joint accounts may, however, conflict with provisions of a will. "It does no good to have a will that leaves an estate equally to all your children if your accounts are in joint names with one of those children," Gaslowitz says. "More and more of our fights are over assets that were transferred 'inappropriately' during a parent's life, thus completely bypassing the plan of disposition laid out in the will."

7. Consider including a "no contest" clause. Such clauses say that if someone contests an estate and loses the claim, he or she is disinherited from the estate. If the claimant is not included in the will in the first place, then such a clause has no deterrent value. Also, Mignogna says, some judges are hesitant to enforce such wills. "Some lawyers recommend that the person making the will leave the disfavored person something in the will," he says, "to pose an economic risk if that person files a will contest." Again, there are substantial differences among the states in the frequency and enforcement of these clauses. A more recent trend in some states, Mignogna notes, is to include a clause that requires challenges to a will to be submitted to a third-party mediator or arbitrator for resolution.

8. Don't try to manage your estate from the grave. Bekerman advises clients not to get too precise in some areas, such as with personal possessions, but to let heirs make their own determinations about how they want to divide some holdings of the estate. "I often have most tangible personal property being distributed as the beneficiaries agree," he says, "as opposed to trying to list every single item and come up with the 'right' beneficiary."