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EP Wealth’s Estate Planner, Kyla Parrino, J.D., shares estate planning strategies to help families navigate inheritance and reduce potential disputes.
How to Prevent Family Disputes Over Inheritance
Estate planning is personal. It’s about more than financial assets—it involves real people, real emotions, and sometimes, real conflict. Families often have expectations about how an inheritance will be divided, and when those expectations don’t match reality, disputes can arise.
While there may be no way to prevent inheritance disputes entirely, there are steps that can better help families navigate these sensitive situations. Based on our experience working on estate planning issues, we note focusing on the following areas:
By addressing these areas, families can help manage expectations and reduce the likelihood of conflict down the road.
The Role of Communication and Transparency
One of the most effective ways to minimize family disputes is to be open about one's estate plan before, during and after documents are finalized. Transparency is important not just in terms of who receives what, but also in explaining who will be responsible for making key decisions.
Estate plan documents often assign significant responsibilities to certain individuals, such as:
- Healthcare decision-makers who may be asked to make difficult medical choices.
- Trustees or executors who will be responsible for managing and distributing assets.
These roles require both time and emotional commitment. A person designated as a healthcare proxy, for example, needs to understand both their legal authority and the weight of making medical decisions for a loved one.
Depending on the complexity of the estate or family business, it may also be helpful to establish some type of governance structure, such as:
Open conversations can potentially help avoid situations where beneficiaries experience frustration or resentment due to unmet expectations over their inheritance and roles. It can also help reduce the likelihood of estate-related litigation after the donor’s passing, which can be time-consuming and costly.
While some families may prefer to keep estate matters private, being as transparent as possible can help reduce tensions and create clarity around inheritance decisions.
The Importance of Updated, Comprehensive Documentation
For example, an owner of certain assets may wish to provide his/her surviving spouse with income from that property for life while directing that any remaining assets pass to the owner’s children after the surviving spouse’s death. One way this may be accomplished is by establishing a trust. However, if the trust structure is not properly documented and depending on state law, assets may instead default in part of full to the surviving spouse or other unintended individuals, leaving no guarantees for other intended beneficiaries.
Another example of potential conflict due to a lack of proper planning occurs when an aging account owner adds a child to a joint account for convenience. What they may not realize is that after their passing, all funds in that account may legally default to that child, even if the owner’s wish was for the money to be divided among multiple children or other beneficiaries.
Both of these examples demonstrate how incomplete or outdated estate planning documents and insufficient planning can disrupt inheritance plans and potentially lead to disputes among beneficiaries.
Steps to Keeping Estate Plans Current
- Regularly review and update documents. Many people create a will or trust and never revisit it. We have seen individuals who haven’t looked at their estate plan in 20 or more years—and in that time, their financial situation, family structure, and/or personal wishes may have changed significantly.
- Communicate where documents are stored. Those named in the documents should know where to find key documents and who to contact, such as an estate attorney or financial advisor, when necessary.
- Adjust plans after major life events. Marriages, divorces, and the birth of children or grandchildren can all affect how assets are distributed. Plans should at a minimum be reviewed whenever there is a significant change in family circumstances.
- Follow the governance structure you impose: An estate plan is only as effective as its execution. When creating a trust, assets should be titled appropriately to reflect the intent of the estate plan and wishes. For example, when making an account or a home a trust asset, counsel should be sought as to how title should be taken so that unintended disposition of the asset is avoided. Otherwise, assets may not be distributed according to the desired intentions.
Handling Disputes Over Unequal Inheritance
One of the most common sources of estate disputes is unequal distribution of assets. However, what appears unequal at first glance may actually be an effort to create balance. When families understand the reasoning behind these decisions, it can help reduce tension and potential conflicts.
Not Unequal, But Equalizing
In some cases, what seems like an unequal inheritance is really an attempt to balance out past financial gifts. For example, one child may have already received substantial support during their parent’s lifetime—such as tuition payments, a wedding fund, or financial help starting a business—while another child did not receive similar assistance, and as such is receiving a larger portion of inheritance at the parent’s passing.
How the conflict can be mitigated: Donors and drafting attorneys have the option of including these types of explanations in estate documents as well as discussion of these decisions with the beneficiaries while the donors are alive. When beneficiaries understand why the distribution is structured a certain way, they may be proactively mitigated or less likely to feel resentment or view the inheritance as unfair.
Differences in Asset Types
Not all inheritances are as simple as splitting cash equally. One child might inherit a home, while another receives an investment portfolio or other assets. While these distributions may be equal in monetary value, the emotional significance of certain assets can make them feel unfair.
How the conflict can be mitigated: One way to reduce potential disputes is to appoint a neutral trustee or executor—such as a corporate trustee or private fiduciary—who can oversee the distribution of assets in an impartial manner. Having a third party in charge of the decisions about how assets are divided removes the emotional element and can help beneficiaries view the process more objectively.
Working with a Financial Advisor on Estate Planning
Estate planning can be complex, and having a team of professionals can help individuals structure their estate in a way that aligns with their wishes. Attorneys, CPAs, and financial advisors each play a role in keeping estate plans clear and up to date.
Contact an EP Wealth advisor to learn more about developing an estate plan that supports your family's needs.
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