Plan Ahead to Avoid Disputes Among Your Beneficiaries

Burkoff & GallagherBy David M. Burkoff and William J. Gallagher, III, HunterMaclean

Special to Elegant Island Living

If you have an estate plan in place, you are already ahead of the curve. Less than 50 percent of American adults have a completed estate plan. Even less have up-to-date plans.

Despite good intentions to pass one’s estate to heirs and worthy causes, disagreements often arise after the estate plan is put in place, and particularly after death, that in some cases lead to lengthy and expensive disputes. Litigation among family members is never the goal of estate planning, yet we see it in our practice regularly.

Having a plan that disposes of your estate is not enough. To have a truly thorough plan in place, you should ask “What if?” and seek to uncover possible pitfalls before they become full-blown family fights. Here are a few important points to keep in mind.

1) Use an In Terrorem Clause. If you have taken the time to set up your estate plan so that it carries out your wishes, take the extra step of preventing others from disrupting your plan. An in terrorem clause penalizes an interested person for contesting your will or trust. Such a clause will still allow your beneficiaries to call executors or trustees to account in the unlikely event they violate their fiduciary duties. Your beneficiaries will still be able to ask a court for instructions. An in terrorem clause will, however, cut out beneficiaries who challenge the structure of your plan, thereby incentivizing beneficiaries to respect your estate plan.

2) Specify Payment of Taxes. The estate and gift taxes are transfer taxes; when you transfer property, unless it falls within an exemption, tax will be due. Identifying whether the tax will be payable from the residue of your estate, from a certain trust account, or from the party who receives the property will serve to eliminate confusion. Moreover, clearly indicating the source for the payment of tax will curtail attempts by beneficiaries to shift tax burdens to each other, which can lead to litigation among beneficiaries given that estate and gift tax burdens tend to be significant.

3) Update Beneficiary Designations. Non-probate assets, such as IRAs, 401(k)s, annuities, life insurance policies, and pay-on-death accounts, are distributed to the parties designated as beneficiaries. Distribution of these assets is not dependent upon the terms of your estate plan or trust. During life, your desire to benefit certain individuals and causes may change. When you update your estate plan to keep it current with your goals and when personal events (marriage, divorce, births, deaths) happen, remember to also update your beneficiary designations.

4) Delegate Duties. The trustee of your trust and the executor of your estate will have many duties to perform, which will take time, effort, and skill. When putting your plan together, reflect on the responsibilities that you are assigning and consider naming others to assist your fiduciary or allowing your fiduciary to appoint professional advisors. For example, delegating duties to an investment advisor, a distribution advisor, or a trust protector will allow individuals with expertise to support your trustee or executor in carrying out your plan.

Proper planning requires thought about potential quarrels and how to avoid them. Consulting with an experienced estate planner can help you spot a molehill before it becomes a mountain. In the event a dispute nevertheless arises, an experienced practitioner will help you or your beneficiaries navigate the legal process to reach a resolution as painlessly and efficiently as possible.

David M. Burkoff is an attorney at HunterMaclean and focuses his practice primarily on business litigation and trusts and estates litigation. He can be reached at dburkoff@huntermaclean.com or 912-236-0261. William J. Gallagher, III is an attorney in the HunterMaclean trusts and estates practice group. He can be reached at wgallagher@huntermaclean.com or 912-262-5996.