Careful estate planning can stave off legal battles!

below is a good article written by Thane Stenner and published in the Globe and Mail.

Last week I had a working lunch with “Bill,” a client who had sold a significant portion of his family-held business about two years ago.

Over the course of our discussion, Bill told me a close friend from his university days had called him last month. The friend's father passed away back in March, leaving a sizable estate. Unfortunately, that estate was now in the process of an extensive legal battle, as four siblings (from two different marriages), a widow, and an ex-spouse bickered and fought over their share of the pie.

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“What a mess,” Bill said, shaking his head as he waited for his grilled salmon. “When I go, I want things to be well-organized – easy to deal with.” Bill paused for a moment before looking at me and adding: “And I want everybody to know exactly what I want done with my money.”

Bill's concern is well founded. In my experience, there's a direct relationship between the size of one's estate and the potential for conflict. The higher the stakes, the higher the chances for litigation.

Unfortunately, as I told Bill, there is no such thing as a litigation-free estate. Even the most well-organized, well-constructed estate may be challenged by disgruntled heirs or creditors. That said, there are things high-net-worth individuals can do to discourage litigation, and diffuse inter-family conflict before it leads to courtroom drama.

Start the process early

Estate planning can be detailed, complicated work. By starting early, high-net-worth individuals have the time to seek professional counsel and consider options carefully. This in turn clarifies intentions, and makes ambiguities and disagreements less likely, which should help deter claims against the estate.

For business owners like Bill, an early start is even more critical. Succession plans need put in place well in advance of the owner's retirement date, particularly if the intention is to groom a particular family member to take over the business.

Avoid ‘surprises’

Most estate litigation is born from what I call the “awful surprise”: an heir discovers they've been left much less than they thought they would, or have not been recognized as an owner of certain assets (the family business, for example). The news generates shock, alienation and anger. The desire to see justice done leads the heir to challenge the will, regardless of the ultimate chance of success.

Most high-net-worth individuals work hard to avoid this kind of dynamic. They communicate their estate intentions to heirs, and, if appropriate, to business partners and associates. If they know their family situation is explosive, they set up a family meeting or formal conference – using a professional mediator, if necessary –to let heirs know what their estate intentions actually are.

Use trusts

Trusts are an extremely flexible, extremely effective tool for organizing high-net-worth estates. Properly written, trusts can accomplish a number of important estate planning goals: They can reduce taxes, increase privacy, protect assets from creditors, protect family assets from future divorces, and structure an ongoing charitable contribution.

Trusts can also be an excellent way to avoid estate litigation. By putting a portion of your assets/estate into a trust, you can ensure an inheritance passes to specific people (adult children from a first marriage, for example). Another possibility is to put a family asset (the family cottage) into a trust instead of bequeathing it to a specific individual. That way all family members can enjoy it without bickering about who owns it. Ultimate ownership should still be completed though.

Assign a professional trustee

As the “manager” of an estate, the trustee wields a tremendous amount of financial power. While appointing a family member has its advantages, it’s unlikely the average person has the time, the knowledge, or even the inclination to properly administer a multi-million dollar estate at the same time they’re grieving for a loved one.

One way to get the best of both worlds is to appoint two estate trustees: (a) a family member, and (b) a financially competent professional (typically a CA, lawyer, or a trustee from a respected financial institution) who knows the family well. By appointing a trustee from outside the family who is legally bound to act in the interests of all beneficiaries, you can eliminate claims of bias or conflict of interest before they happen.

Update your will

Changes in business or family relationships can create friction among heirs. By regularly updating their wills, high-net-worth individuals can avoid making that friction boil over into legal challenges and/or inter-family disputes.

Reviewing a will every two years is usually a good rule of thumb. Such a review needn’t take more than an hour – the idea is to check to see whether everything is still in order. If a significant life or financial change takes place earlier than that (a marriage, a divorce, a liquidity event, etc.), a more frequent update may be warranted