Richard Morgan, Morgan and Disalvo.
This video newsletter is about avoiding destructive post-death disputes.
One of the things that we deal with as lawyers, is we think about what may happen in the future. All those what-ifs. In some situations, because of family dynamics, potential family member beneficiaries or people being avoided. Either disinherited, not being treated equally with what they think they should be treated. All different kinds of situations where there’s a heightened risk of a post-death dispute. Another is a blended family, kids by prior marriages, things like that.
So, if we had those situations, we want to make sure that there is no fight when someone passes away. It is incredibly destructive, both in money and family dysfunction if we have any of these post-death disputes. When lawyers start getting hired and disputes start to happen, it takes a life of its own. It’s really destructive.
So, how do we avoid it? We go through several steps. Number one, and this is just a little self serving. You want to make sure that you hire a good experienced estate plan attorney that knows how to avoid these things. Because inevitably, it will happen if you don’t prevent it. Make sure that the documents are very well drafted. They are clear and unambiguous. If there’s any ambiguity in these documents, that will be part of the fight.
Number two, we’ve got to make sure the client is competent and clearly competent. And needs to be documented, so that someone can’t argue later that they were taken advantage of or they were incompetent at the time. You got to make sure the documents are properly signed. Sometimes clients will say, “Can you just send me the documents to sign?” And we’ll say, “No, it doesn’t work that way. You need to come in the office and we’re going to have all our witnesses and our notary. We’re going to talk about everything. No one else will be in the room. And we’ll sign everything properly.”
If it’s a will they’re going to dispute, they have to prove something was wrong during the signing ceremony. If it’s a revocable living trust, they have to prove it was wrong pretty much from the moment of signing until the moment of death. Almost impossible. But they have to prove something was wrong. So, if we control the environment, we can make sure that’s not going to be an argument that they could ever win.
Next, if you perceive a post-death dispute, the number one way to avoid it is to use a revocable living trust as your main document. And then put all your assets in that document. I’m sorry, in that trust, while you’re alive. Because the assets are not going to be going through the probate estate, which deals with the probate court, which is more informal.
To dispute the trust, you’re going to have to go to a superior court in Georgia where you need pretty much a real lawyer to file real pleadings. Or it’s not going to do someone any good. I personally, have never seen a revocable living trust broken unless it was out and out fraud. Forgery fraud, that kind of thing. So, normal situation, it’s almost impossible to break a fully funded revocable living trust.
In your document, your will and your revocable living trust, we are a huge advocate of using something called an in terrorem clause. Now, these are great when they’re used by good lawyers, not so good when they’re used by bad actors. But used by a good lawyer, what they basically say is, “There is no fighting. We’ve spent a bunch of time and money getting this plan right. If you want to fight over the plan, you will get nothing.” Which makes it way more difficult for that beneficiary to fight about the plan if they’re going to get nothing.
Which leads us to another potential benefit along with that. Is you might want to give someone something even if you would otherwise disinherit them, you might want to give them something to lose so that the in terrorem clause has more teeth. Because as you get nothing, they have something actually to lose.
Next, you’ve got to make sure, and this is key, that you have good fiduciaries. I would say in my experience, about 80% of all estate and trust disputes is because of a bad choice of fiduciary. You chose the wrong person. They were a bad actor, they just were incompetent, they weren’t responsive, they weren’t reasonable, they didn’t act prudently.
They don’t communicate with anyone, so everyone thinks something’s wrong, which cause it to snowball. They cause issues. You want to make sure you have the perfect person. If you don’t have a perfect person to serve, then you put it in a trust company. You got to make sure you have the right fiduciaries or problems will happen.
You should consider why the dispute might happen and there may be steps to consider during your life that could tamp down that potential dispute. So just make it so it’s not as big of a deal. One thought is, if you’re treating, let’s say children differently, and this comes up often.
Let’s say that one child is a brain surgeon and makes a lot of money or an entrepreneur, makes a lot of money. And another child has made very poor life decisions. Two or three kids out of wedlock, living in a trailer home, is not good. They have all kinds of bad decisions. They living paycheck to paycheck. You have to give them gifts to live.
And you might say, “Well, my one child needs the money, the other child doesn’t. I’ll just give it all to the person who needs it.” If you just do that without talking to the money child, there’s going to be animosity. It’s not going to turn out well. But if you go to that money child and say, “Son, daughter, whoever it is, here’s the situation, I think it would better, what do you think?”
They’re probably going to say, “Mom, dad, you know what? That’s fine. Go ahead and do it.” Probably, but at least you’ll figure out what’s going on and probably put the problem down from the very beginning. If you don’t talk about it and you just do it, it probably isn’t going to turn out very well. You want to make sure that all of your assets are titled properly and the beneficiary designations are proper to be consistent with your plan. If you have it where they’re not consistent, bad things will happen.
So for example, the beneficiary designation goes to the wrong party or there’s a joint account. There was a joint account with one of the children for administrative convenience purposes. So that one child could pay your bills. And then, of course, you pass away. And if you have a joint account with someone else, under Georgia law, it’s considered joint tenants with right of survivorship. Which means, at your death, bam, it just goes to the other joint owner.
That’s not what was intended. It was administrative convenience. But that’s what happens. So, a potential fights going to happen from that. Beneficiaries, it may be that you want all the children to benefit, but you ended up having your ex spouse on a beneficiary designation. Well guess what? It’s going to the ex spouse. So, you just want to make sure beneficiaries are proper, ownership is proper to make sure your plan works as intended.
Last, it may help, not always, but it may help to communicate your plan to your loved ones so that everyone kind of knows what’s going on. And if there’s an issue, it arises now, let’s deal with it and let’s move on. So, those are the things to think about. But if you perceive a post-death dispute is a higher likelihood, you need to do something about it.
Richard Morgan, Morgan and Disalvo.