How to Divide an Estate Between Siblings
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You may think of estate planning as a way to minimize the impact of estate taxes, provide for an orderly distribution of your wealth after death and a method of limiting the costs associated with the probate process. Unless you have only one child, avoiding conflict between siblings needs to be front and center in your mind as you plan for the distribution of your estate.
Death of a parent and new-found wealth frequently create the perfect mix for nasty conflicts among children. According to a survey a bank conducted of its financial advisors, 77% of them said the toughest part of their job when advising clients about estate planning was overcoming the family dynamics responsible for infighting among descendants
A carefully thought out estate plan can avoid or, at the very least, reduce the risk of conflict among siblings. Fairness should be the keystone of your estate plan, but first, you need to recognize what is fair in the context of your own family. Avoiding squabbles and hurt feelings may be impossible to achieve, but there are steps you can take when dividing an estate between siblings to minimize conflict.
What is fair for your family? It may not be what you think
Dividing your estate into equal shares among all of your children may, at first blush, appear to be the fair and sensible way to avoid conflicts. It may not be fair and, instead, may lead to even more conflict and hard feelings. For example, if you paid the tuition for one of your children to attend college and obtain a degree, an equal distribution of your estate may not be seen as fair by your other child who entered the job market right out of high school.
Some of the other reasons why an equal shares may not be fair may include:
- Financial status of each child: If one of your children has achieved financial success while another earns a modest salary, you may decide that an equal division of your estate would not be fair.
- Disabled child: Receipt of inherited property may disqualify a child with a disability from some government assistance programs, such as Supplemental Security Income and Medicaid. Instead of an equal outright distribution of your estate to each of your children, you may wish to discuss with an estate planning attorney the creation of a special needs trust. The terms of the trust instrument allow its funds to be used to supplement and not disqualify the child from receiving government assistance.
- Poor financial habits: As difficult as it may be for a parent to admit, the adult child with no savings and maxed out credit cards who you suspect may have a gambling problem may not be the best candidate to be handed an equal share of your estate. An estate planning attorney may suggest the inclusion of a trust in your estate plan. Inherited property going to the free-spending sibling would instead go into the trust to be managed and controlled according to your instructions by a trustee. You may restrict use of trust income and assets to protect them from being squandered or misused.
- Strained family relationships: If your relationship with one or more of your children deteriorates to the point that you do not want them to share in your estate, leaving them out of your estate plan documents may appear to be an unintended oversight. The law in California, for example, presumes that all of your children are entitled to share in your estate unless your will or trust make it clear that disinheriting a child was intentionally done.
It may turn out after carefully considering the dynamics of your family situation that you decide the best and fairest way to divide your estate is by giving equal shares to all of your children. The key is to think it out and make your decision part of your estate plan documents.
Problems with siblings settling estates
Settling an estate is a process ending with distribution of estate assets to the intended beneficiaries. If you die leaving a will, settlement of your estate requires appointment by a court of a personal representative, referred to as an “executor,” to handle settlement through a probate proceeding.
The executor is someone designated in a will by the testator, which is the person for whom it was created, to take charge over estate assets, pay taxes and expenses, and ultimately distribute the estate to family members according to the terms of the will. The process is different when the real property and personal property you own was transferred to a trust created during your lifetime. Trust assets are distributed according to the terms of the trust without the need for probate.
The person chosen to settle the estate should be someone you have confidence in to faithfully carry out their duties. Overseeing and managing a trust or settling an estate through probate can be a difficult process. Pick someone who you believe can handle the job.
As a general rule, a personal representative needs to be someone capable of committing the time and effort. They need to be comfortable working with law firms, courts, banks, creditors of the estate, appraisers, real estate brokers and others during the process.
Even when dealing with a small estate, it helps to choose a personal representative with at least some experience handling financial matters. Part of the job of an executor or trustee is to safeguard and protect estate assets, which includes taking steps to avoid a decline in monetary value.
Using one or more of your children to be the personal representative of your estate depends on what you know about your family members. You want to avoid problems rather than create them. For example, if your children do not get along with each other now, it is doubtful they will suddenly begin cooperating with the sibling you put in charge of your estate.
Putting two or more siblings in charge may only make matters worse with constant bickering and disagreements serving only to delay settlement of the estate. One solution to avoid a problem may be selection of someone other than a family member who is respected by your children may be a better alternative.
When there are more than two children in a family, there may one who is looked up to by the other siblings or has a knack for mediating family conflicts and disagreements. Choosing that child may help ease family tensions during settlement of the estate.
What happens when heirs disagree over what to do with a family home?
The family home may be one of the most valuable items in an estate. As such, it may become the cause of disagreements among siblings over how to handle distribution of it. The usual procedure is for real estate to be placed with a real estate broker and sold with the proceeds of the sale distributed to the heirs.
A frequent source of conflict occurs when one or more of the heirs want to hold on to the property while other family members want it to be sold. One method of resolving the matter would be for the siblings who wish to keep the property offering to buy out the interests of the other heirs. The buyout price would be the market value as determined by an appraiser.
If the heirs cannot agree on a buyout, the executor has the final say as to the disposition of the home. Of course, the decision by the executor must conform to the wishes of the testator as written in the will.
How to avoid sibling disputes
Communication can be the key to planning your estate to avoid feuding among siblings, according to estate planning author Harry Margolis who suggests: “Where parents discuss their choices with their children and are transparent about them, there’s less likely to be trouble than where they don’t. If parents favor one child over another and explain their reasoning, children are more likely to accept the results.”
Allowing your children to be part of the estate planning process or, at the very least, discussing your estate plans with them can go a long way toward avoiding ugly conflicts after your death. In fact, Gaining an insight into how your children feel about your plans may cause you to alter them.
For example, a frank discussion about your estate may reveal that some of the items of personal property that you envisioned being sold upon your death have sentimental value for one or more of your children. Instead of allowing them to be sold at an estate sale, you could make bequests of the specific items to the children that wanted them. An appraiser can determine the market value of each item. Your money in the estate or other personal property may be given to your other children to offset the bequest.
The same holds true for other decisions you make about your estate plans, including who you appoint to settle the estate. Again, quoting Harry Margolis, “If the parents communicate their decision ahead of time, children might be disgruntled but are likely to accept it. On the other hand, if the children find out about the different treatment after the death of the parent, there’s more likely to be unhappiness and feuding. This is especially true if there was a change in the plan close to the time of death.”
Estate planning should strive to avoid disagreements and disputes that may turn loved ones against each other. Being transparent with family members about your plans for the distribution of your estate may help to avoid arguments that delay settlement. Working with an experienced estate planning attorney offers a source of advice and guidance.