When family members do not have realistic expectations about the amounts they will be inheriting, disputes can arise easily. A recent TD Wealth poll points to family conflicts as the biggest cause for estate planning issues.
Follow these steps to set inheritance expectations for your family:
Estate planning is a sensitive topic, but cluing your beneficiaries in on your preferences is an important step to take before they are left without reference. If you'd like to designate specific assets to specific beneficiaries, now is the time to explain your reasoning for these decisions. If there are conditions you have set in place for your family to receive their inheritance, make sure they understand them.
Decisions that may seem controversial, such as leaving money to a pet, unequally distributing assets to children or siblings or leaving a family member out of a will all need to be addressed to prevent family squabbles in the future.
Though more families are discussing their estate plans, a whopping 79 percent of parents are not disclosing the exact amounts that they are leaving to their children, according to a recent poll by Ameriprise Financial. This can easily result in misunderstandings and unrealistic expectations when the time comes to distribute assets. Telling your children the specifics of their inheritance can help them develop and adjust their own estate plans.
For parents with children who are minors, having this discussion is even more important. While some parents worry that sharing estate plan information may lead children to make poor financial decisions, experts say it will help young children mentally prepare for the possibility of a tragic event.
Many people expect to inherit far more than what they receive. One reason for this is taxes. Putting your assets in an irrevocable trust is one way to ensure the value of your estate is not subject to state and federate estate taxes upon your death.
However, if this isn't an option for you, ensure that your family members have a realistic idea of the amounts they'll receive after taxes.
Ensure your will covers all caveats
Individuals who die intestate (without a will) leave inheritance up to state law. With more and more cases of blended families and adults with multiple ex-spouses, divvying up inheritance by intestate law may not accurately reflect the wishes of a family member who has passed. Setting expectations for your family may mean getting around to having your will drafted.
Those who have a will should ensure that it is updated and clear every few years.
Choose a responsible executor
An Executor of a will manages the affairs of the person who has passed, including distributing the person's assets to beneficiaries. If you do not assign an executor, the court will appoint one. However, choosing a responsible executor with high integrity is a good way to help your family understand how your estate will be handled following your death.
If you aren't sure what expectations you have for setting your own estate plan, contact an attorney for advice. An estate planning attorney will be able to layout the important steps you should take to leave your family in good hands.