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At some point we all need to do some estate planning. Ask anyone who has been an Executor or Trustee for a deceased loved one how the experience was and don’t be surprised if you hear that it wasn’t pleasant. If more than one family member is involved, the odds are especially high that ill will and hard feelings will result from the administration of the estate or trust. Add in a family business to the mix and the odds of experiencing disharmony among family members increases even more. Preserving family harmony is one of the most overlooked aspects of estate planning today, and it usually comes down to who is appointed to serve as the fiduciary.
A: When a person dies owning assets in his individual name, his estate generally must be probated in order to transfer ownership to beneficiaries. If the deceased individual had a Last Will and Testament, it is admitted to probate by the court and a fiduciary called an “Executor” is appointed to follow through with the directions set forth in the Will. If someone dies without a Last Will and Testament, the court appoints a fiduciary called an “Administrator” to handle the estate. In the case of a trust, there is a fiduciary called a “Trustee” to follow the directions of the trust. Very commonly, people name other family members such as children, parents or siblings to be their fiduciary in estate planning documents, often without asking them in advance.
A: Problems often arise at the death of the last parent when one child of many is named as the fiduciary. Children handle grief differently, and emotions can be easily elevated when dealing with the loss of a parent. Division of personal property between siblings can often lead to feelings of jealousy or being shorted. This friction can be magnified when beneficiaries have differences in economic status. Another potential problem is unexpected sibling rivalry, which can quickly develop after a parent’s death. Parental gifts and loans to family members can also be the source of discord, as can beneficiaries’ spouses attempting to influence matters. Additionally, when some family members are involved in a business and others are not, handling issues such as how the business will be managed, what its value is and how it will ultimately be divided are full of potential conflicts of interest.
A: By naming an independent fiduciary in your estate plan, such as a bank or trust company, you can dramatically reduce the possibility of conflict between family members and have the best chance for preserving family harmony.
For an extended discussion of the above and other family harmony enhancing estate planning strategies, see Timothy P. O’Sullivan, “Family Harmony: An All Too Frequent Casualty of the Estate Planning Process,” Marquette Elder’s Advisor, Article 4, Vol 8, Spring, Issue 2 (2007).