How to reduce the risk that heirs will sue your estate - or each other
Ric Edelman: It's Wednesday, September 6th. Do you have a will? Well, I hope you do, although less than half of Americans actually do. But let's assume that you do have a will. Is that will going to successfully pass your stuff to your heirs as you hope that it will?
In other words, the purpose of a will is to answer one and only one simple question. Who gets what? That's really why you write a will. You stipulate who your heirs are and what they each receive from your assets, your overall possessions. And a lot of people assume that, well, gee, since I've gone to the trouble of writing a will, whoever I said in the will is to inherit whatever it is I said they're to inherit, then no problem. Right?
Actually, you might be surprised. There was a survey of 443 wills that were probated in San Francisco over a three-year period. 12% of those wills went into litigation. Why might that be? Well, number one, an heir claiming that the deceased was wrongly influenced by a different heir or perhaps other family member or maybe even the executor or trustee of the estate. And that wrongful influence caused them to change who gets what. And if somebody feels they didn't get as much as they should have gotten or wanted to get or thought they would get, they're going to sue.
Another reason people sue is because they argue somebody somewhere took advantage of the deceased's incapacity. You know, dad had dementia or Alzheimer's or some other limiting mental capacity, and he didn't know what he was signing. Again, partly due to wrongful influence.
And finally, another big reason people are concerned about the suitability of the executor. If you've got three children and you name one of them as the executor. The other two children might not be satisfied with that decision. They might argue that there's favoritism involved, that the child you chose doesn't have the skills or the ability or isn't willing to take the time to make effective decisions regarding the estate's disposition.
You might think this is all very simple. You own a house; you're going to leave the house to your children. But that house has to get sold, and that's the responsibility of the executor. Do they know how to sell a house to maximize its value? And how do you determine which offer to take? Do you take the low all cash offer or the higher offer that is contingent on financing? Do you spend $50,000 at the suggestion of the real estate agent to spruce the house up to repaint and recarpet to maximize the ultimate sales potential of the house?
This is complicated stuff, and if you end up selling the house for less than what some of the heirs think the house ought to have been sold for, the result is litigation. We need to recognize that this kind of thing happens a lot. I was just talking with a good friend of mine who has the unfortunate luck to be the executor of somebody's estate.
There's a joke in estate planning circles. If you have an enemy, make them your executor. It's a thankless job. It involves hours and hours of work over a year or two. You're generally not paid, although the executor can choose to be paid if they wish and they have personal unlimited liability.
So if there is a lawsuit involved, that executor or trustee could face personal financial risk based on the decisions, the actions they take or fail to take. Anyway, there was this one particular will that this person was dealing with, and none of the deceased's siblings received anything in the will. That is ripe for litigation. This is a common mistake people make in their wills.
If you are estranged from your family, there's no law that says you have to leave them anything in your will. But if you leave them nothing. A very common lawsuit is he forgot to include me in the will. It wasn't his intention to exclude me.
And this is why a lot of estate lawyers say if you want to exclude someone from the will, don't do that. Include them, but just leave them only $10. That will show that you deliberately chose how much to leave them. And then while you're at it, record a video of yourself reciting the fact that you are leaving them only $10. And you might even want to mention why. To reduce any likelihood that a court would say we agree with the plaintiff, the deceased forgot.
So just because you have a will doesn't mean all your estate planning problems are over. You need to make sure that you are minimizing the likelihood of litigation. Marilyn Monroe's will is still being litigated. How many decades later? You certainly don't want that to be an experience your family goes through. Make sure you're getting good legal advice from an attorney who specializes in estate planning.