Estate litigation can result from family dynamics such as sibling rivalry or favouritism. It could also result from second marriages, resulting in blended families whose members may have no emotional ties with one another.
Family members, friends or others who believe they’re entitled to some – if not all – of an estate can present legal challenges too. A lot of people today want instant gratification and there are many with heavy debt loads. They may have factored inheritances into their financial plans, and spent them in advance.
Estate planning centers on one main goal - preserving assets. Various strategies are employed to reduce tax liabilities but even the best efforts can be fruitless if claims wind up in court.
The dangers of estate litigation go far beyond hefty legal fees. It can stress relationships to the point where family members often end up estranged at a time when they need each other’s support the most.
What to do? No strategy can guarantee that an estate remains litigation-free, but the following strategies may help.
Make a Will
A will documents how you wish to distribute your estate upon your death. The absence of a will can lead to claims against the estate because without one, there is no evidence of the wishes of the deceased.
Avoid Homemade Wills
A will drafted in your own handwriting or using a will kit can lead to problems. A properly drafted will requires specific legal language and terms that the average person wouldn’t know or use. Homemade wills are fertile breeding grounds for estate litigation.
Update and Review Wills Regularly
Wills need to be updated following any major event: the birth or death of a child, a significant change in financial status, the death of a spouse or remarriage, unexpected changes in tax or other legislation that affect the estate plan. For example, this can avoid unknowingly leaving a portion of the estate to an unintended beneficiary.
Include an 'In Terrorem' Clause in your Will
An in terrorem clause states that any beneficiary who contests the will automatically forfeits their gift. The clause may be of use if the beneficiary was known to be contentious by nature and the gift was large enough to warrant litigation.
Have capacity test by doctor and lawyer
If mental fitness is a concern, a capacity test can be used to certify that an individual has the requisite mental condition. In addition, the lawyer drafting the will can be asked to make notes about the individual’s mental state.
When an older client makes a will for the first time – or revises it significantly – either to include or disinherit a family member, or to substantially increase or decrease a gift, it’s a good idea to have a capacity test administered by a health care practitioner.
Communicate with Heirs and Beneficiaries
It’s essential the testator communicate with heirs and beneficiaries about intentions for distribution of the estate. This will clear up any misunderstanding or misinformation, and in the process, can help the individual find out what preferences beneficiaries and heirs may have.
Have a Professionally Mediated Family Meeting
The meeting advises the beneficiaries of the testator’s intentions and seeks their input in developing the estate plan. The beneficiaries can sign an agreement not to contest the will. While the family conference may not work for all families, it can be very beneficial for some, especially if the testator is aware of litigious family members or strained family relationships.
Choose your Executor Carefully
The executor is responsible for administering the deceased’s estate. Often, the testator will appoint a spouse or eldest child. It’s an important role that requires a certain level of skill and understanding. If the executor doesn’t do his or her job correctly, or is negligent, legal consequences may follow, and they may become personally liable.
Consulting with your financial adviser, doctor and lawyer can help to clarify a suitable strategy in avoiding estate litigation.