To most people, the concept of inheritance may seem fairly straightforward – when someone in a family dies or is of old age, they transfer their assets to their children or other family members through various forms including money, stocks, property, and a number of other assets. Unfortunately, the phrase “easier said than done” rings true in many cases of inheritance across the country, as intrafamilial transfers of wealth have been known to cause severe complications within the family. It can seem on the outset that dealing with estate taxes as well as government regulations can be a headache, but the truth is that one of the biggest conflicts that can arise when it comes to family inheritance is conflict within the family itself.
This claim is not a mere speculation but statistically backed up as recently as this year. TD Wealth, a wealth-management sector of the Toronto-Dominion Bank, recently did a poll in January 2018 at the 52nd Annual Heckerling Institute on Estate Planning in Orlando, Florida. Therein, they found that 44% of attorneys, trust officers, and accountants out of 109 professionals believed that estate planning was indeed most threatened by family conflict. Sadly, this statistic is capable of getting worse over time. The Trump administration’s new Tax Cuts and Jobs Act of 2017, which lowers taxes both for individuals and businesses, is not universally well-received among estate planning attorneys. Although 50% of professionals say this will benefit individuals, as the legislation increases the estate tax exemption to $11.2 million per person, 36% of those asked are not sure of the outcome and 16% say that the bill will negatively impact on family estate planning. Whatever the case may be, with an estimated $30 trillion dollars of inheritance up for grabs in the next thirty years, it is worth delving deeper into the specifics of family conflict, the reasons for why it happens, and potential solutions to streamline your family’s inheritance process.
While a multitude of reasons exist for family squabbling in this area, money is almost certainly a primary factor. For former spouses, siblings with bad histories, and estranged family members, tense relationships are only exacerbated by the prospect of getting less capital than they “deserve”. This can lead to a grueling experience of fighting a legal battle with family members, potentially for years on end. According to Ameriprise Financial, there are three main reasons for family conflict when it comes to inheritance. Firstly, many people have drastically unrealistic expectations when it comes to how much money they will receive; most people believe that they will inherit over $100k in assets when the likely outcome is much less. Second, a lack of communication has been known to exacerbate familial tensions as according to a recent survey on the matter, a shocking 69% of siblings have not been told how much they will receive, which can lead to confusion in the future. The third reason, family drama, has been known to affect over a quarter of people in inheritance situations.
Although problems like the ones outlined above are extraordinarily common and likely to persist in the future, there are many solutions that can help ease tensions and smoothly transfer assets between family members. For example, open communication is essential so that aging parents can explain their wishes to their children in a transparent manner; one way to increase transparency in this matter is to include all potential beneficiaries in your all estate planning conversations. Ray Radigan, head of private trust at TD Wealth, advocates to “clue your beneficiaries in on the how and why of your estate plan”. This can avoid awkward situations such as a large portion of the parents’ wealth being left to charity with the children feeling angry and confused, or beneficiaries reacting negatively to getting their inheritance in the form of a trust.
Arguably, even more essential than to have good communication is to create a plan as early as possible. This is because without drafting an estate plan (the only way to make sure your assets are divided to your liking), individuals leave their money in the hands of the state in which they reside. This little detail can prove tremendous as many states have vastly different policies regarding the division of assets. In New York, if you die without a will and leave behind a spouse and kids, your spouse gets $50,000 plus half of the balance, and what’s left is split evenly between the children. In other states, Texas specifically, one’s separate personal property (i.e. money or car) goes into a ⅔ split between children and the remaining ⅓ to the spouse.
Lastly, one of the most important parts of having an inheritance within your estate plan is consistently updating it as time goes on if you feel that your family situation warrants the change. Life can creep up at any time, whether it is changing financial health, a child facing health challenges or the fact that we are living in a time where divorce is higher among the baby boomer generation than ever before. Continually updating the beneficiaries on the inheritance can assist in lowering volatility in estate planning when the time comes.
Whatever your situation may be, make sure to do your research. If you do plan on leaving your heirs an inheritance, it is highly recommended that you consult with a licensed estate planning attorney who can guide you through the process of making sure your assets are ready to be smoothly transferred at the right time. Though splitting assets can be difficult, most families do not want a money-fueled version of the Jersey Shore.