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KEEPING YOUR FAMILY FROM FIGHTING

- By Eden Rose Brown J.D. Attorney and Counselor at Law

Through the years I’ve seen hundreds of arguments erupt among even the most loving siblings over the estates of their parents. In nearly every case, such fights could have been avoided had their parents anticipated the problems.

As a values-based estate planner, my goal is to design plans for my clients that are drafted with enough thought and foresight to prevent family squabbles and to keep the family as close as they were before mom and dad died. Proper planning will leave the children with neither a reason nor the opportunity to argue over their parent’s estate, and go a long way in maintaining family harmony, dignity and caring. Here are a few things that can be done now to ensure a peaceful transition of assets:

1. Problem: One child is wealthier than the others.
I call this the rich-kid/poor-kid syndrome. The problem is how to divide the family assets when one child has more than another.

Example: Take the case of parents with two sons – one is a successful physician… the other a struggling artist. If the parents ignore the differences in their sons’ financial situations and divide everything equally, the artist might not have enough money to send his children to college or even provide a decent standard of living for his family.

But if the parents leave more to the artist than the physician, the physician may feel that the parents have cheated him out of his inheritance, just because he has done well after years of hard work.

This is a very common scenario. Every day clients struggle with this dilemma. Parents want to provide an equal inheritance to their children, and yet they know that one child is less well off than the others.

Fair vs. Equal.
When children are small, parents generally provide for each child differently, depending on their needs. One child may play a sport that requires expensive equipment, the other may not; one child may go to private school, the other may excel in public school; one child may be healthy, the other might require extensive medical care. For most of their lives, parents tend to treat their children unequally, and rarely give it a second thought. It’s only at death that parents feel compelled to provide an equal inheritance to each child, independent of each child’s lot in life. For most parents, the solutions lie in dividing up their estate fairly rather than equally.

Solution I. Less may be more.
Explain that you would like to leave the less-fortunate child with more financial assets, but ask the wealthier child if there is a family asset that he or she wants. Or ask if there is any preferred method of inheritance, such as a trust to save income or estate taxes, or provide asset protection from lawsuits or divorce. Sometimes the wealthier child is content with inheriting a favorite asset or a particular method of inheritance in exchange for less of an inheritance.

Solution II. Help the less-fortunate child now.

Education and Health Care. Pay the child’s (and grandchildren’s) health care and education expenses. Gifts for health care and education are tax-free so long as you write the check directly to the service provider and not to the child. There is no limit to the amount you can gift each year, and the amount gifted does not affect your annual $11,000 exclusion limit on individual gifts. Examples: Pay the tuition for your grandchild’s private pre-school or the uninsured medical costs of orthodontia.

Provide for College. If the less-fortunate child has children, consider making gifts to the grandchildren to help fund their college educations. Grandparents can set up College Savings Plans (529 Plans) for their grandchildren while they are alive, easing the needier child’s burden and providing each grandchild with as equal an educational opportunity as their wealthier cousins.

2. Problem: Dividing a house among the heirs.
Nasty battles can occur on issues of ownership or sale of a house. Not only can a home be one of the estate’s largest assets, but there is often sentimental value attached.

Solution I: Discuss it beforehand.
While parents are still alive, they can discuss with their children the issue of what to do with the house so that they can reach an acceptable agreement. The parents can then draft their estate plan in accordance with the agreement and limit the likelihood of their children fighting over the house.

If at the time, none of the kids or grand kids are interested in the home, consider including in the estate plan a “right of first refusal” for the home. This would allow the one in charge of settling the estate or trust to offer the home to a family member before it is sold to the general market.

In situations where only one child wants the family home but doesn’t have enough money to buy out his or her siblings, you can leave the house to that child – and have the rest of the family divide the remaining assets. Of course, this depends on the fair market value of the house and the remaining assets.

Or you could put the house into a trust and require that the family member who wants to live in it after your death pay rent to the trust. The other children are the beneficiaries of the trust and receive the rental income. The family member could also buy the house from the trust, and the sale proceeds could be divided among the other children.

Solution II: If reaching an agreement is impossible, the best way to resolve prolonged wrangles over family real estate is to stipulate in the will or trust that the property must be sold within a set period of time and the proceeds divided among the children.

Making sure that your heirs remain on good terms with their siblings is a crucial element of every good estate plan. Knowing where the landmines are will help.

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Attorney Eden Rose Brown is dedicated to providing comprehensive, highly personalized estate planning counsel to couples, families, individuals and businesses. She holds the highest standard of scholarship, client service and lawyer accessibility. The Law Office of Eden Rose Brown is located downtown in the Pioneer Trust Building, 117 Commercial St. NE, Salem, OR 97301. 503-581-1800. Eden@EdenRoseBrown.com