First Comes the Estate, Then Come Family Feuds

CLE spotlights common family fights in estate planning

Beneficiaries of an estate can quarrel over anything. But trust and estate attorneys can anticipate some feuds that can be headed off or mitigated with planning while parents are still alive. 


“There are general patterns that attorneys and advisors can recognize,” said Taft Stettinius & Hollister partner Missia Vaselaney. “And sometimes, if we can recognize an unhappy family, a family with conflicts before it’s too late, we can prevent some problems.” In a recent CLE, she and Michael Sneeringer, a senior associate at Porter Wright Morris & Arthur, talked about when family disputes are most likely to happen, the most effective way to disinherit someone and snags that can spring up in succession plans for family businesses.

Disputes are rarer when the first parent passes away. The children want to look good for the surviving parent, Vaselaney said. She said she gives the surviving parent limited power of appointment to redistribute money within the parents’ bloodline if needed. “We never let the surviving parent go outside the combined bloodline because we don’t want them leaving it to the new wife or the new girlfriend.”

When disinheriting a beneficiary, state it simply. When the second parent passes away, Vaselaney said, all bets are off, and siblings most often quarrel over personal property. “Every sibling rivalry that existed from the time they could speak or walk comes to the surface.” 

She said the best approach to disinheriting an heir is to leave them nothing in the trust documents so he or she won’t be a party at all in the process and potentially have access to insurance or documents in the process. Vaselaney also advised stating the decision to leave him or her nothing simply, recalling a client whose trust once stated “I choose to leave them nothing [because] I’ve otherwise provided for them,” and said $90,000 was ultimately spent litigating the meaning of “otherwise provided for them.”

If leaving something to a beneficiary a client would rather disinherit, it might work to have a clause in the trust stating the beneficiary will lose the money if they contest the amount. Vaselaney said the parents’ intent is to make the beneficiary feel some pain if they lose the money, and the amount to achieve that varies between families.

“In some families feeling the pain is $50,000, in some families it’s $500,000, and in some families it’s $5 million, where anything below those amounts, they would be willing to fight for,” she said.

FAMILY BUSINESSES

Vaselaney and Sneeringer detailed the multitude of complications that can come with passing on a family business. Sneeringer advised having a face-to-face conversation with beneficiaries ahead of time to talk about how a business will pass down. These types of issues just can’t be communicated about as effectively digitally, he said, which Vaselaney echoed.

“Having these conversations before mom and dad die, they’re very uncomfortable, but sometimes it gets things aired out before mom and dad can still fix things.”

One snafu, they said, can happen when a young heir believes he or she should have a high-level position in the business [while] they’re actually ready, which might lead to them not being taken seriously because of perceptions of nepotism. Vaselaney said she has seen some of the most successful transitions happen when a young heir works for a different company for several years to learn the ropes and pay his or her dues. He or she can get better mentorship and feedback than in the business where his or her status is that of the owner’s child.

“Send them off someplace else, see how well they do on their own before you bring them into the family business,” she said.

Vaselaney talked about the importance of an option to buy less involved family members out of the business to head off any bitterness they might feel. One option is through estate insurance. 

“Taking a kid out of a family business by giving them something else, even if you have to create it through insurance, is a better thing to do than having a disappointed minority shareholder getting no distributions while you and your sister are taking out a bunch of salary,” she said. “You’re just asking for a shareholder lawsuit.”

And she said parents should have a conversation with their children about whether they actually want to take up the mantle of the family business, since that’s not always the case.

“That is so much more important to younger people today, is they want to be doing something that they feel is fulfilling, and maybe making widgets isn’t fulfilling if that’s what your family business does, even if it had done it for three generations,” Vaselaney said. “Maybe they’re working at the business to keep you happy and they’re not happy, and that’s not going to work in the long run.”

—Julia Cardi

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