Accenture estimates that $30 trillion will pass from Boomers to Millennials over the next 30 years. Will this intergenerational wealth transfer actually happen? Who knows? At one time Boomers were expected to benefit from a similar windfall of equally gargantuan proportions — some $41 trillion at the time of this study (2003). Then reality stepped in, the “great recession” hit (likely the worst global recession since World War II), incomes stagnated, people lost their jobs. More recent estimates now put the expected Boomer inheritance at $8.4 trillion.
Uncertainty is unavoidable, the best we can do is manage it. And good estate planning is all about managing uncertainty. The trick is knowing which uncertainties or “risks” to focus on. Traditionally, the risk factor most estate planners and their clients spent most of their time fretting about was taxes. In reality, estate litigation poses a much greater risk for most people. According to this study fewer than 2 out of every 1,000 Americans who die — 0.14% — owe any estate tax whatsoever because of the high exemption amount (which has more than quadrupled since 2001). By contrast, the potential wealth-destroying risk posed by estate litigation is exponentially greater. In fact, according to a study cited this weekend in a WSJ piece entitled When Heirs Collide, it’s a risk that actually impacts around 70% of all families:
Roughly 70% of families lose a chunk of their inherited wealth, mostly due to estate battles, according to research conducted over two decades by the Williams Group, a San Clemente, Calif., firm that helps families avoid such conflicts.
How to manage estate litigation risk? Think process . . . then think mandatory arbitration:
Until fairly recently most estate planners (and their clients) assumed there was nothing you could do from a planning perspective to improve the process for resolving estate disputes once they broke out, all we could do was focus our planning energies on prediction and prevention. Preventive planning is important, be we can’t stop there. If “[r]oughly 70% of families lose a chunk of their inherited wealth, mostly due to estate battles,” planning for a better dispute-resolution process needs to be a high priority. So how do we do that?
Step one, opt out of all the unpredictability and qualitative limitations inherent to an overworked and underfunded public court system that asks our probate judges to juggle thousands of cases at a time. (In Miami-Dade – on average – each of our probate judges took on 2,848 new cases in FY 2012-13, and in Broward the figure was even higher at 3,105/judge.) Step two, “privatize” the dispute resolution process to the maximum extent possible via mandatory arbitration clauses in all our wills and trusts, which are enforceable by statute in Florida (F.S. 731.401). I’ve written before on why I believe privately funded and administered arbitration proceedings are a better dispute-resolution process for estate litigation. Whether you agree with me or not, there’s no denying this fact: estate litigation is a real threat potentially impacting every one of our clients. One way or another these disputes will get resolved. Planning for that eventuality requires a focus on process, not just prevention.