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Five Estate Planning Challenges

When setting up your estate plan, you should devote a little extra time to the unique things about your family and beneficiaries that could cause problems down the road. After all, who knows the strengths and weaknesses of your family members better than you? Are there any situations that might require special treatment in your legal documents? This article provides five common estate planning challenges to consider, especially to help prevent future “Family Feuds,” as discussed in the three-page article.

You Might Have Memory Issues

As we get up in years, some of us occasionally get a little forgetful. Your loved ones might wonder whether you have memory issues. Nonetheless, if you are in your seventies or older, or you suspect your natural heirs might have questions about your mental capacity, you can be proactive. You can create the strong evidence now to prove your “legal capacity” to engage in estate planning, should that ever be challenged later. This evidence can help ensure that any challenge to your estate plan will fail, on the grounds that you somehow lacked the capacity to make plans.

Where do you start? Schedule a full physical examination and competency evaluation by your regular treating physician. Have him or her provide a letter, near the time you make your estate plan, stating that you are of sound mind. This strategy protects your wishes, in the event of a future potential estate contest.

Special Beneficiary Concerns

Nearly every family has a member who could be vulnerable in the future. This is why careful planning is required. Only you can make those plans. This is especially important in situations where a family member has special needs or issues with addictions.

For any family member with special needs who is receiving any form of means-tested public benefits, you might consider a special needs trust to preserve that family member’s eligibility for such assistance, while having use of trust assets set aside to “supplement” their needs and wants not otherwise provided. If the special needs trust planning is not done properly, the family member may become ineligible for benefits. Even if the family member is allowed to maintain eligibility by the government programs, any assets remaining in the trust at death will not pass along as you may have intended. How? When the beneficiary dies, the government will take the assets remaining in the trust as reimbursement for any public assistance benefits the family member received during his or her lifetime. There is seldom any money left over after that reimbursement for further distribution to other family members.

Drug and alcohol addiction are rampant in our society. If your family has not been touched by this fact of modern life, then consider yourself very fortunate. If you have children or grandchildren who struggle with substance abuse or misuse, you can take steps to avoid providing the financial resources to further “fuel” their addictions. For example, one way to protect an inheritance from and for your heirs with addictions, is through a long-term discretionary trust. This type of trust can be tailored to meet the need to protect the inheritance from being used to fund life threatening “benders” and to protect it from the consequences of bad conduct. In addition, a long-term discretionary trust can provide funds for addiction treatment and even “incentives” to get clean and engage in responsible living.

Acrimonious Heirs

When two siblings have a history of not getting along, it rarely gets better when there is an inheritance between them. How can you avoid creating situations that are likely to trigger litigation over your estate? For example, you might not want to force these two siblings to work together as co-trustees. You might want to give each of them roughly equal inheritance shares and, if you do not, provide an explanation regarding why the shares are not equal.

While these two siblings may never become friends, you should take proactive steps to avoid a preventable legal challenge to your estate plan. These lawsuits could drag out the distribution of assets to all your beneficiaries and deplete the estate financially. When someone files a lawsuit against your estate, the estate must defend your estate planning. Every dollar the estate is required to spend on court costs, experts and legal fees is money that does not go to your heirs. Do you really want to make trial lawyers your heirs by default?

Heirs with Different Financial Needs

It is common for a parent to leave a valuable asset, like the family home, to all of the children equally. What if the local real estate market is down? A sibling who has steady employment at a well-paying job might want to hold onto the house until the market rebounds. Another sibling who has significant debt or uncertain job prospects, might want to sell the home now and split the proceeds.

Selling the house now will mean that all the siblings will receive less money, than if they waited until the market recovered. There might be costs associated with holding on to the home but renting out the house could offset those expenses. Instead, consider giving each heir different assets of equivalent value or using a life insurance policy to provide quick funds for a child who has financial insecurity.

A “Needy” Heir

Sometimes an heir has significantly higher needs than your other similarly situated beneficiaries, such as siblings. For example, a grandchild has cancer. As a result, your adult child has massive medical bills. Perhaps your child had to leave his job to serve as your grandchild’s full-time caregiver. On the other hand, your other adult children are financially secure, with high-paying jobs, retirement accounts, little debt, healthy families and substantial savings. If you want to give one person a significantly larger portion of your estate than other heirs at the same generational level, like siblings, you should call a family meeting. Sit down with all of them and tell them what you want to do and why. You might find that they will endorse your plan whole-heartedly. At worst, the disparity of inheritance shares will not come as a surprise.