Estate planning plays a couple of very important functions for families. One is, of course, the transfer of wealth between generations. The other is creating clarity that will help family members avoid disputes over that wealth.
Increasingly, however, families with significant wealth are finding themselves embroiled in legal battles over a loved one’s estate. These conflicts not only consume estate assets, they damage family relationships, sometimes irrevocably. There are several reasons for the uptick in estate and trust disputes among high net worth families, and they are worth exploring. The lessons that can be drawn from them can benefit other families as well.
Five Reasons for Increasing Estate and Trust Disputes
Some of the reasons that estate disputes are on the rise among the wealthy have to do with national or even global trends; others stem from the relationships between the unique people involved in a given case.
Wealth is being transferred at unprecedented levels.
The youngest of the Baby Boomers are now over 60, and the eldest started turning 80 this year. As they pass away over the decades to come, tens of trillions in assets will pass from them to younger generations. Even if the proportion of disputed estates didn’t change, the increase in the overall number of estates (not to mention the sheer volume of wealth involved) means the absolute number of disputed estates will increase.
Assets are increasingly complex.
It’s not just the volume of wealth that is changing; it’s the very nature of the property involved. High net worth families often have more complex assets: closely held businesses; real estate in multiple jurisdictions, including other countries; unique or illiquid assets; and digital assets like cryptocurrency. Novel assets may be difficult to value accurately, and assets that span several states or countries can pose logistical challenges and lead to disputes.
Family configurations continue to evolve.
Around 40% of married couples with children involve at least one partner with children from a previous relationship. Blended families are nothing new, but they do create unique challenges when it comes to estate planning. A common scenario is for the interests of a second (or subsequent) spouse to have a conflict with their spouse’s children from a previous relationship.
Even if there is no existing conflict between a newer spouse and their partner’s adult children before the partner’s death, it can quickly arise afterward. With the common family member deceased, stepparents and stepchildren may be less invested in preserving their relationship, and more likely to see the other party as threatening “their” inheritance.
Poor planning and poor communication affect wealthy families, too.
It’s tempting to believe that high net worth families with multimillion-dollar estates have their estate planning perfectly in order, but that is often not the case. With high net worth estates, the composition of a portfolio can change rapidly. Existing planning documents can become outdated much more rapidly than they might in families with fewer and less complex assets.
Rapidly-evolving tax laws can further complicate matters; an estate plan designed for one scenario may not be ideal when the law changes. Or a tax strategy intended to be temporary can become permanent by default or inattention.
It’s not just poor planning that can lead to conflicts; poor communication between generations can also fuel conflict. High net worth families may not always be transparent about estate planning, often out of a desire to preserve flexibility should needs or priorities change. Or a desire to keep their affairs private. The downside is that heirs can develop expectations that are not accurate. When those expectations collide with a different reality, anger and litigation often result.
More to lose means more reason to fight.
In families with less wealth, protracted litigation could lay waste to much of the estate, making a long court battle over inheritance counterproductive. (Of course, this doesn’t mean that there often isn’t fighting in these estates). In high net worth families, by contrast, there could be tens or hundreds of millions of dollars at stake. In high net worth estates, it’s often not just money at stake, but also power, such as control of a closely held family business.
With that much at risk, heirs may have little to lose if they challenge a perceived injustice, and much to gain if they are successful.
Work with an Experienced High Net Worth Estate Planning Attorney
High net worth families face some unique estate planning challenges, but many of the issues they face, like blended family concerns, poor communication, and outdated planning, affect families across the wealth spectrum.
The skilled estate planning attorneys at Barron, Rosenberg, Mayoras & Mayoras help people create estate plans tailored to their goals and their family’s needs, and designed to prevent costly estate litigation. Schedule a consultation today by calling (248) 641-7070 in Michigan or (941) 222-2199 in Florida to learn how we can assist you. You can also use our simple online contact form.