10 ways to prevent inheritance disputes
There's nothing quite like an inheritance dispute (or estate administration dispute). When someone dies, friends, co-workers, long lost cousins, etc., seem to come out of the woodwork to try to get their share of the estate. One of the most famous involved Anna Nicole Smith. Hers was a protracted battle with her deceased husband's son over her share of the estate, with hundreds of millions of dollars in dispute. It went on for years and ended up at the U.S. Supreme Court (twice!). Smith herself died before it was finally resolved, her estate ultimately losing the case.
Not every estate dispute is on the same scale as Smith's case, but they can be just as contentious. If one family member feels they were cheated, or multiple siblings can't agree on what to do with family property, or any other number of reasons, the whole family can be torn apart by the resulting turmoil.
But rather than focusing on the dispute itself, let's see what can be done to prevent it in the first place. Here are a few things to consider when deciding where your property should go when you're gone, to make sure there is as little drama as possible.
1. Include a “no contest” clause in your will or trust
A no contest clause is a provision in your estate plan aimed at deterring litigation. In general, it “punishes” a beneficiary for contesting the will or trust in court by forfeiture of the beneficiary's share if they lose. In California, such clauses are generally unenforceable unless the beneficiary brought the contest without probable cause, but they can at least help to deter the most frivolous litigation.
2. Draft your documents according to all proper legal formalities
One common point of contention that can arise is whether your will or trust was drafted according to the formalities required by law. If not, it can be held invalid and your estate distributed according to the laws of inheritance.
For instance, in the case of a will, in general, it must be signed by you and 2 witnesses. There is an exception to this for holographic (handwritten) wills. It does not need to be witnessed if signed by you and the material provisions are in your handwriting. An experienced estate planning attorney can walk you through any other requirements, depending on your situation.
3. Draft a living trust
Having a living trust, rather just a standalone will, is a great way to help minimize disputes. A living trust gives you much more control and flexibility over how you distribute your assets, allows you to appoint a trustee to manage the trust according to your wishes, and helps keep your estate out of probate (discussed below). The flexibility of a living trust allows you much more control over what happens to your estate.
4. Keep your estate out of probate
Probate is the court-supervised process of wrapping up your estate after you're gone. A “personal representative” is appointed whose job it is to take stock of the assets, have them appraised, and ultimately distribute them after obtaining court approval. It can go on for several months or even years. Probate is not the type of process that promotes family harmony. The longer it goes on, the more chances there are for a dispute to develop.
The best thing to do is avoid it altogether. In addition to drafting a living trust, there are several other ways to keep property out of probate, such as owning certain property as joint tenants (when you die, the property passes automatically to the other owner outside of probate), or “payable on death” designations on bank accounts (your beneficiary can access the money after you're gone, without going to probate).
5. If you cut someone out, make it explicit
Certain loved ones are difficult to disinherit. In California, it is presumed that you would want to provide for your spouse and children. If you simply fail to leave them anything, the court may assume that you forgot, and award them a share anyway. If you truly intend to disinherit someone, you must manifest your intent by specifically stating so in your will or trust, and naming the person.
6. Consider talking to your family members beforehand
Depending on your relationship with your loved ones, it may be best to leave no surprises when you're gone. You might want to talk to them beforehand about your plans for your estate. Many arguments and misunderstandings can be prevented by having this discussion. You might even seek input from your intended beneficiaries on what they would like to receive.
7. Choose the right executor, trustee, and guardian (and alternates)
The right executor or trustee can play a big role in preventing disputes. An organized person who gets along with everyone (and who can resist family pressure) can help things go smoothly, giving less reason for a challenge. Also, the more responsible the person, the less likely they are to make a mistake that can be contested in court, or lead to a petition for removal. Many decide to go a step further and use a corporate trustee, such as a bank, to help minimize disputes.
Likewise, if you have minor children, choose the person you name as guardian wisely, considering their circumstances and ability to take on the role.
8. Make sure your estate plan is up to date
Circumstances change all the time. You might get remarried, or have another child, or decide to disinherit a previous beneficiary. When it happens, you need to make sure your estate plan is updated to reflect these changes so that your wishes are carried out. It's also just a good idea in general to have your estate plan looked over periodically (inheritance and tax laws change too, and you might be affected).
9. Draft a living will and power of attorney
Sometimes disputes can start even before you're gone. If you become incapacitated, or cannot make medical or financial decisions for yourself, your family will need to step in. If they disagree about the right choice to make, there will be trouble if you haven't documented what you would like done.
A living will, or advance healthcare directive, allows you to spell out what type of medical treatment you want (or don't want) performed. It takes the pressure off your family of trying to figure it out. Additionally, you can draft a power of attorney for healthcare to name someone you trust to make those decisions for you. You can also draft a power of attorney for financial matters to take care of practical things, such as paying your bills.
10. Obtain a Certificate of Independent Review
California law has protections in place to prevent people in certain trusted relationships (such as an attorney, caregiver, or their relatives) from taking advantage of a vulnerable person. If you plan to leave money or property to such a person, you will need a Certificate of Independent Review. The review is conducted by an impartial attorney who can certify that this is indeed your wish. If you fail to get this, it could lead to litigation or the gift could be held invalid.
Chances are you won't be able to eliminate all possibility of a dispute. However, if you are aware of the potential for disagreement, keep mindful of your family's unique triggers, and consider the steps above, you can go a long way toward eliminating big disputes and planning for a smooth administration of your estate.
Helix Law Firm can help with estate planning
Thinking ahead and drafting the right estate plan for your needs and the needs of your loved ones will help prevent disputes down the road. Helix Law Firm can help you think through potential trouble areas and come up with the right estate plan for you.
If you're interested in setting up an estate plan, please call us at (619) 567-4447 to schedule a free consultation.