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Family conflicts threaten estate planning

Uncle Sam and federal taxes are not necessarily the biggest obstacle to distributing a large estate. Actual uncles and other relatives are the biggest source of estate litigation, according a recent poll by TD Wealth. Its findings are also instructive to all individuals who plan to bequeath assets to surviving relatives and for those who do not necessarily benefit from raising the estate exemption to $11.2 million.

Blended relatives, multiple former spouses, children from earlier relationships and much younger surviving spouses are the major sources of disputes, according to the survey. Ensuring some tranquility among these family members and avoiding litigation requires planning.

First, an estate plan is the closest guarantee that assets are divided as intended. A person who dies without a will leaves decisions on distributing property to Arizona's courts. Individuals can also make up inequities in the will, such as paying a relative who loaned them money or assisted with the family business, by naming that relative as an heir in the will and naming other relatives as beneficiaries to a life insurance policy.

Surprises on inheritances are usually unwelcomed. Lawsuits, resentment and disputes may be avoided through communication and transparency. Beneficiaries should be informed about the estate plan.

For example, trust beneficiaries may believe that establishing a trust is punitive or indicates a lack of trust. It is helpful to tell beneficiaries that creation of the trust is a method to protect them, which they will gain access to its funds at an appropriate time and that placement of assets in the trust protects it from legal claims.

Review of wills, trusts, beneficiary designations and business succession plans should also occur periodically. However, this is even more important when there a change of life situation, such as a birth, death, marriage or divorce. New tax laws are also another significant reason.

Updating wills and beneficiaries helps avoid unintended consequences. A divorced spouse may end up receiving an inheritance, instead of a current family member, if these documents are not updated.

Experienced estate attorneys can help draft valid documents that reflect a person's intent. They may also present options that help assure the financial security of their heirs and beneficiaries and avoid a court battle.

Source: CNBC, "Say hello to the No. 1 threat to your $11 million inheritance," Daria Mercado, April 11, 2018

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