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Issue 3 – December, 2007

Editor’s Column

Conflicts and Estate Planning

John (Jeff) Scroggin, J.D., LL.M., AEP, Editor
Phone: 770-640-1101

“Conflict is inevitable, but combat is optional.” Max Lucade

I have never been very impressed by lawyers who advertise on billboards. I think is cheapens a profession that the public already suspects is driven more by the money than the client’s needs. Over the Thanksgiving holiday my family and I returned to my old hometown and I saw that such advertising may have reached a new low: a billboard advertising for lawyers to represent you in your probate litigation.

While I may not like it much, it’s pretty clear that estate conflicts have exploded in the last 20 years. When I started practicing in Atlanta in 1979, I don’t know of a single lawyer whose practice was devoted to probate litigation. Now, I would estimate there are 50 or 60 lawyers in the field in Atlanta.

Why the explosion? According to a number of studies there is more wealth getting ready to pass then the world has ever known. There seem to be more dysfunctional and blended families then every before. There are more family businesses to fight over, more personal property to battle about, more people that you never got along with and who you have an abiding distrust of.

Conflict is a natural part of human existence. Unfortunately, the trauma of death, disability and divorce tend to significantly magnify conflicts which already exist – or which lie smoldering below the service. If, as I believe, the first goal of estate planning is to “Protect and Preserve the Family” then exploring methods which reduce the results of conflict should be a central part of every estate plan.

Divorce. Someone once said: “Marriage is often due to lack of judgment, divorce to lack of patience and remarriage to lack of memory.” Around half the marriages in the US end in divorce. But, divorce is largely an ignored issue in many estate plans. However, the US high divorce rate means that planners must deal with the complexities of blended and dysfunctional families and competing spousal views of how children and stepchildren should be treated. Virtually every estate plan should address the potential of both the client’s and the client’s heirs potential divorce.

For example, does that irrevocable trust you just looked over terminate the spouse’s fiduciary rights, beneficial rights and any powers of appointment upon divorce? Does the termination occur when the petition is filed or when the decree is final? That gap can allow a disgruntled soon-to-be ex-spouse to make some damaging decisions.

A worse example: With about half the marriages ending in divorce, there is a lot of personal property sitting in second marriages. How do you prove what assets dad intended to convey when he said in his will: “I give all my personal property to my children from my prior marriage.” ? What title document exist to show that the father owned that old family heirloom rather then the new and not-yet-liked wife?

Personal Property Dispositions. The attention paid by heirs to personal property after its owner’s death is often radically disproportionate to both its focus in the pre-death estate plan and its appraised value. One of the more interesting dynamics of estate planning is that in many cases, the greatest intra-family conflict is not over a large inheritance or the placement of assets in spendthrift trust. Rather it is often an unexpected byproduct of personal property dispositions.

To the extent the client wants a particular asset to pass to a particular person, the client is best advised to provide a legally enforceable document that passes that particular asset (defined with specificity) to a particular heir. This is especially important when assets are being transferred to more remote heirs (e.g., family friends or remote cousins).

Clients should be strongly encouraged to talk to their adult children about which assets they want to receive upon the parents’ death. These desires should be carefully documented. This brings to the fore any ownership conflicts that may exist prior to the parents’ death. Because the parents resolve the conflict, any long term damage in the children’s relationships can be minimized.

We often recommend that either a digital or videotape be made of the personal property and a notation be made of which client owns the assts and which family member receives the asset as a part of their inheritance. Moreover, if a video camera is used, it is an excellent way of providing the legacy of any heirloom assets so the heirs understand the family history of the particular asset.

As noted above, clients (particularly in blended families) should document the ownership of assets.

The choice of an personal representative can be very important because the client wants to make sure that these personal property dispositions occur in exactly the manner that the client desired. Therefore, the choice of a disgruntled child or second spouse as personal representative may sometime create a conflict with the other heirs and may not be the best choice.

Choice of Fiduciaries. The choice of fiduciaries is one of the most important decisions a client can make in minimizing family conflict. The choice of the right fiduciary can either avoid or create conflict. In selecting the persons who will act for the estate and/or any trust, the client should focus not only on the fiduciaries competence, but also on the potential sources of conflict.

It is the advisor’s responsibility to focus the client’s attention on avoiding a structure which breeds conflict. For example, appointing an estranged stepson to act as Trustee for a stepmother is probably not a good idea. The stepson may be the remainder beneficiary of the trust, creating an inherent conflict of interest. Moreover, he may be less disposed to adequately provide for someone who is not his blood parent.

Summary. While divorce and conflict may be inevitable parts of human existence, there are ways to minimize their impact in an estate plan. Clients recognize the conflicts they and their friends have seen in other estate plans. As a result they are increasingly demanding an emphasis on methods which are designed to reduce conflicts among their own heirs.