Protect Your Legacy from Inheritance Conflict

If you have a legacy, you naturally want to protect it. The list of risks to protect against is endless, and this article focuses on some common estate planning risks. I’ve handled many trust, probate, and estate disputes involving family estates over the years, and I’ve noticed some common mistakes that put family legacies at risk. These lessons can help reduce self-inflicted damage to a family estate. Call the experienced Trust and Estate Litigation Attorneys at Palomar Law Group for skilled assistance in any type of estate, probate, or trust dispute. Call (760) 747-2202 to arrange for your complimentary consultation.

Ways to Define and Protect Your Assets

Step 1: Define your legacy

Who (or what) is your legacy? The answer to this question may not be immediately apparent. The answer may surprise you. Everyone has a legacy that is unique to themselves and their circumstances. And values and priorities change over time. So the first step isn’t easy for everyone. Thinking about it and then talking with others about it will help you define your legacy.

Step 2: Protect your legacy

The basics. You can protect your legacy by yourself as long as you have (1) the capacity and (2) the skills to do so. Capacity is a broad and complex topic that requires a separate discussion, but it boils down to managing your affairs using your own wits. Skills are management tools that you either have from your own experience or that you can hire others to provide. For example, many people can manage their finances on their own, and many people hire a professional for technical jobs like filing tax returns, getting tax advice, and preparing an estate plan.

Learning from mistakes. We can learn from our own mistakes in the “school of hard knocks” – a frustrating but effective way to learn how to protect ourselves. Classic examples include loaning money work to friends, going into a business venture without prior experience, and selling a home without a realtor. We can also learn from the mistakes of others. That is the focus of this article.

Learning from the Mistakes of Others– 3 Real-Life Cases

Over the last 10 years I’ve had the opportunity to see first hand the aftermath of mistakes that people made when creating their family estate plan. I have gleaned three categories of mistakes from real life disputes. The 3 categories are (1) Neglect, (2) Indecision, and (3) Hiring Amateurs.

Note: these facts are from real situations. I have left out names and omitted many details in order to respect the privacy of the people involved.

Category 1: Neglect

Case Example – No estate plan

• Second marriage
  • New spouse and step children don’t talk
  • Parent seriously disabled at early age by unexpected illness

Aftermath

• New estate plan created after disability
  • Children contest new estate plan and challenge father’s legal capacity
  • Medical experts on opposite sides debating legal capacity
  • Family business placed in limbo
  • Family finances and discord made public

The lesson from this case is straightforward: don’t procrastinate. Get your estate planning done right away to lessen the risk of being caught unprepared.

Category 2: Indecision

Case Example 1 – Lack of follow-through

• Substantial retirement account owned by parent
  • Beneficiary designation to new spouse
  • Verbal promise of substantial gift to children
  • Parent dies but leaves nearly all money to spouse

Aftermath

• Lawsuit by children alleging interference against new spouse
  • 5 figure legal bills to litigate a settlement; medical expert required regarding capacity of parent
  • Family finances and discord made public

My takeaway from this case is to grapple with the tough issues and don’t sweep them under the rug. If an allocation needs to be made between a spouse and children, then wrestle with the issue and get it done. Leaving it to chance risks injury to your family and the legacy you worked to build.

Case Example 2 – Changing the Estate Plan

• Substantial brokerage account owned by couple
  • Relative promised substantial gift
  • Relative loses favor and couple disinherits in favor of neighbors

Aftermath

• Lawsuit by relative alleging undue influence and lack of capacity
  • 5 figure legal bills to litigate a settlement
  • Family finances and discord made public

A good lesson here is that change isn’t necessarily a good thing. Patience and leaving the estate plan intact may be the wiser course than a last minute change that invites a challenge by the displaced heir.

Category 3: Hiring Amateurs

This is the most common kind of mistake that I’ve seen in these kinds of cases. Families doing estate planning and trust administration on their own, often without professional guidance or counsel.  The results can be extremely damaging to the family and their legacy.

Case Example 1 – The DIY Estate Plan

• Substantial brokerage account and residence in the estate
  • Self-drafted trust created by settlor with multiple amendments
  • Grandparent appoints grandchild as trustee
  • Contentious heirs have access to estate planning documents during lifetime of the settlor and multiple versions of trust are created

Aftermath

Lawsuit by children alleging mismanagement, undue influence, etc.

Transfer of residence to daughter challenged

Questioned documents experts and medical expert required regarding alleged forgeries of estate planning documents and capacity of grandparent

Family finances and discord made public

The lessons here are obvious: (1) hire a lawyer to prepare the estate plan, and (2) restrict access to the documents. When a family allows anyone to grab the papers and make changes then the stage is set for mass confusion and contention when the settlor passes away.

Case Example 2 – Out thinking the Settlor

• Valuable estate controlled by a long term trust with dozens of heirs
  • Heirs make deal with corporate trustee to take over management of the trust instead of trust company
  • Family trustees then distribute all income to themselves (less than 10 out of dozens)

Aftermath

• 6 figure legal bills to litigate dispute through trial
  • Family finances and discord made public

A simple lesson here is to respect the settlor’s wishes. Tinkering with someone else’s estate plan is risky and can end up costing the estate dearly.

Case Example 3 – Opportunism

• Mid-sized estate with residence and commercial property and brokerage account
  • Parents appoint child as trustee
  • Trustee loans money to self to buy a manufacturing business and cuts sibling out of the trust
  • Sibling dies and grandchild asks for parent’s inheritance, and trustee refuses

Aftermath

• Grandchild sues trustee for improper management of stocks over 20 years, disgorgement of profits from business worth high 8 figures
  • Legal fees of 7 figures
  • Judgment of 8 figures against trustee and very favorable settlement to contestant
  • Family finances and discord made public

The lesson here is very simple – don’t create a situation that tempts a family member to treat the family assets as their own. If there is a chance of a lengthy administration, consider appointing a corporate trustee. Although it costs more, it can also be well worth the cost to avoid contention and very costly litigation.

The Key: Create a good succession plan. Most of the mistakes resulted from the failure to create a good succession plan for management of the estate.

Pointers for creating a good succession plan

• Work on it, don’t procrastinate
  • Make the tough decisions, allocate when necessary
  • Hire a professional fiduciary?
  • Hope for the best and plan for the worst

“Free advice” – Talk to an Estate Planning Professional

Top reasons why people see a lawyer to create an estate plan:

• Avoid probate to protect privacy of family finances
  • Sickness
  • Age
  • Children/ grandchildren



Call our Trust and Estate Litigation Attorneys for help with your trust, probate, or estate dispute. We use sound principles and practical guidance to help clients find solutions. Call (760) 747-2202, or contact us online.