An elderly woman on her deathbed has an estate worth $400,000. She has four children and a will stating that she wants each child to receive 25 percent of her assets after she dies.
The situation seems simple enough: The woman has a legal document in place—a will—that contains specifics on how she wants her estate to be passed along to her children. But according to estate-planning experts, this woman's death could kick off a long and expensive legal process that often turns ugly. Fights over inheritance can cause rifts in families that are sometimes impossible to heal, these experts say.
"Family fights among children after death occurs in a large percentage of families," says Tim O'Sullivan, a partner and estate planning and tax attorney at Kansas law firm Foulston Siefkin. "If the No. 1 goal is to create family harmony, then the estate plan ought to be designed in a way that preserves it. It's so sad to see what happens in these situations."
To prevent this kind of conflict, more sophisticated legal arrangements are necessary, experts say. Even for people with modest wealth, advanced estate planning can help ease resentment during a painful time.
A will's shortcomings. Dan Peare, an attorney and chair of the trust and estate departments at Hinkle Law Firm in Wichita, Kan., says a will is essentially powerless until a family enters a process called probate. He describes the probate process as a "set of procedural laws that determine what happens to someone's property when they die." All heirs named in the will are part of the process, with the will serving as a guide for a judge to determine how assets should be allocated.
"A will is set of instructions listed on a piece of paper that's given to the probate judge," he says. "It's a worthless document until probate."
Peare says the process, which differs from state to state, can take up to a year and requires hiring an attorney. It also leads to fights over assets, upsetting the harmony that many people strive to create when they draft a will.
"The probate process is expensive, public [meaning information that families might want to stay private becomes a matter of public record], and time-consuming," Peare says. "There's a great majority of people who have done no planning, or the only plan they've done is to put together a simple will. As a general rule, people should use revocable trusts as opposed to a will to avoid probate."
The revocable trust alternative. According to Peare, a revocable trust is a less-complex method of estate planning. This trust is "a contract that you make to establish an entity into which you transfer title of your assets in your name. In your own trust, you can do anything you want. If you die, the trust doesn't die with you—you appoint a trustee to oversee the trust," he says.
Once a trustee is named, he or she can divvy up assets based on the wishes of the deceased family member. Peare calls the trusts a "probate-avoidance tool" that largely removes potential for family infighting.
"To avoid conflict, you have to have a well-written trust and a will and have an independent third party that you trust to oversee it," Peare says. "Ambiguity leads to conflict. If the trust is well-thought-out and well-written, conflict can be avoided."
"With a will, you fight about who gets what. With a trust, you stay out of court," he adds. "If you want to change a trust, you have to file a lawsuit. If you have a will, you're opening up a lawsuit by simply creating a will."
Peare says he now recommends trusts for younger people as well as those with more wealth. "As a younger attorney, I thought a trust was better for an older person with a lot of wealth," he says. "But over the years, I've come to believe that a trust is better than a will in every way for every person."
Living wills and healthcare proxies. According to O'Sullivan, people should also plan for the period just before death. That means drafting a living will that states how they want to be cared for if they are unable to respond. This will should also appoint a person to make healthcare decisions should you become incapacitated.
"People should be appointing someone to act of their behalf if they became disabled," O'Sullivan says. "Even if they're married, the laws of states are different and in many, the spouse is not legally allowed to make [healthcare] decisions."
He says it's also important for young people to explicitly name the person who will care for them should they become disabled.
"Disability, especially for younger people, is a very high risk compared to death," he says. "A lot of individuals think the spouse automatically has the authority to make decisions on a disabled husband or wife's behalf. In many states, that's just not the case."