Planning Your Estate? 5 Tips to Avoid Family Disputes
When it comes to the subject of inheritance, most of us will have heard horror stories about families (even happy ones) being torn apart by arguments over the family wealth.
One recent story in The Telegraph, for instance, tells of a man who became separated from his wife in 2016 and then moved to Cyprus. He later met another woman and left her his £30K British Army pension when he died, which his wife and children had expected to receive. The family’s resentment is clear in the wife’s letter to the newspaper.
As financial planners here in Lincolnshire, we often help clients manage the financial aspects of preparing their estate in a tax-efficient manner. Along the way, we have seen and heard plenty of stories about the family disputes which can emerge (particularly due to poor planning and/or communication).
In this article, we’ll be sharing some thoughts about ways to reduce the risk of a big family fall out over an inheritance. Please note that this content is for information purposes only. It should not be taken as financial advice or professional relationship advice. To receive regulated, tailored financial advice into your own situation please speak to a financial adviser.
It is probably fair to say that one of the biggest causes of family feuds is due to perceived “unfairness” in a Will. Suppose you have 3 siblings, for instance, and your parents plan to leave 30% to 3 of their children. The youngest child is set to receive 10%. This disparity is quite likely to result in protestations from the youngest, and possibly even from the other 3 children.
Of course, things are not always straightforward. Perhaps in this scenario, the youngest ran up significant debts which the parents ended up regularly clearing (totalling 20% of the value of his/her inheritance). In which case, arguably the youngest should receive less than the others.
This leads onto the second point.
Whilst family conversations about inheritance can be very awkward, they are usually worthwhile. Almost always, this is immensely better than allowing everyone to find out about decisions in the Will at the time when the parents have just died. At this point, emotions are usually more raw and big fall outs are, therefore, much more likely.
Communication between parents and children can help to address feelings of unfairness. Let’s take the example described above, once more. Suppose the family sits down together once the children are older, and the parents explain that each of them should receive one-quarter of their estate when they die. However, any debts the children incur (which the parents then bailout) would be deducted from their share of the inheritance.
Communicating these “ground rules” early on might not eliminate family disputes over perceived unfairness, but can make them less likely. After all, if after this conversation the fourth child goes on to reduce their inheritance by accruing large debts, then it becomes harder for them to blame their parents or siblings.
It’s easy to assume that parents, children and grandchildren all think the same way when it comes to money and wealth. Yet this is not always the case.
For instance, many people want to put vast portions of their estate into various trusts – in order to control how, and when, their money is passed on to their beneficiaries. One common approach is to leave a certain amount to adult children, with the express purpose that the sum can only be used towards a deposit for a first home.
Whilst this can make a lot of same and can certainly be a valid approach for some people, in other situations it can cause family squabbles. Perhaps your children have a different attitude to money, where they believe they should be allowed to make independent decisions, and receive inheritance money without stringent controls.
Again, communication can be a hugely beneficial way to determine everyone’s attitudes towards money and wealth, and factor these into your estate planning decisions.
Trusts can be very useful within estate planning, especially when it comes to their potential (in certain cases) to reduce inheritance tax liability. Yet it is important to be careful when it comes to selecting trustees for the trusts.
In general, selecting one of your children to be the sole trustee of their sibling’s shares of the trust(s) is usually a bad idea. It might be more sensible to appoint all of your children as trustees or to select an impartial, professional trustee instead.
If you do decide to include all of your children as trustees (in the hope of minimising sibling squabbles), then it can be a good idea to appoint an independent tie-breaker. This allows for disputes to be resolved more quickly, impartially and less acrimoniously.
#5 Updating the Will
If you die without a Will, then your estate might not be allocated according to your wishes or to your loved ones’ expectations. This, in itself, can be a recipe for family disputes, especially if certain siblings, spouses/partners or grandchildren end up getting more or less than others.
One way to help avoid these scenarios is to create a Will, specifying what happens to your estate when you die. Ideally, this should be professionally created with a lawyer in order to ensure that there is no ambiguous language which could be misinterpreted, leading to family arguments during the administration of your estate.
However, it is also important to keep your Will up to date once it is created. Your financial goals and circumstances can change as time goes by. So, even a Will which the whole family views as very “fair” at the beginning can eventually become seen as “unfair” as your estate develops.
Here at Castlegate, we are partnered with Duncan and Toplis Probate Services – a specialist in Wills and Probate – in order to assist people with these decisions. Get in touch to arrange a free consultation regarding your estate, today.