Please, please, PLEASE!! Spend a few extra bucks today to avoid tomorrow’s disastrous estate litigation. In the public health world it’s estimated every dollar spent on vaccines returns up to $44 dollars in savings over the long haul. My own totally subjective and unscientific walking-around sense of the world (based on 20 years of experience) tells me we get the same kinds of returns for every dollar spent on litigation-avoidance estate planning.
What’s litigation-avoidance estate planning?
So how can you “vaccinate” an estate against future litigation? It’s easier said than done. Why? Because your single most important witness in these cases — the testator — is dead (think: worst evidence rule). This problem is especially acute in undue influence cases, which are inherently fact-intensive and open to manipulation by unscrupulous litigants. Here’s how Dr. Bennett Blum, a forensic and geriatric psychiatrist and author of the Undue Influence Worksheet (which I wrote about here), described this threat and the need for smart preventive planning in his latest article, Undue Influence and Financial Exploitation:
[F]alse claims of undue influence are used by those who wish to dispute the wishes of someone who is impaired or has died. Undue influence claims undermine testator wishes, promote family feuds, and — when prominent individuals or families are involved — create media attention and public scrutiny of their private lives. In addition, contested wills, trusts, and estate plans are expensive to litigate and can significantly erode the corpus of an estate. Challenges are more likely to arise when late changes are made to an existing plan. Planning for the possibility of a will contest is both prudent and cost-effective.
There’s no one magic bullet for immunizing estates against litigation (for a comprehensive list of options, see here), and the level of preventive planning will depend in large part on the client’s risk profile and willingness to cooperate. In high-risk cases one of my favorite defensive planning techniques is a variation on the “golden rule” standard of care commonly followed in UK and Commonwealth jurisdictions: I arrange for a medical professional’s assessment of the client at the time the documents are executed and preserve this evidence in a stand-alone affidavit executed by the clinician.
This kind of planning requires a good amount of logistical coordination, client buy-in, and flexibility from all concerned, but it pays huge dividends in future cost savings. In Undue Influence and Financial Exploitation Dr. Blum describes the value of this technique using two real-world examples:
[A] careful and well-documented assessment covering all the relevant behavioral issues, not just medical or cognitive concerns, can prevent years of litigation and unnecessary delays in executing the client’s desires, and avoid associated public scandals. Two examples:
In one case, a man separated from his wife and wanted to change his estate plan, but believed that his wife would challenge the new will. An assessment was performed at the time that the will was executed. When he died several years later, the former wife indeed said he had been unduly influenced. However, she withdrew her legal challenges after reviewing the expert’s report.
In another case, a wealthy and high profile woman who had suffered a mild stroke wanted to divide her estate equally amongst her children, but also gave one adult child large amounts of cash. Knowing that there was animosity towards this child from his siblings, the mother agreed to an undue influence assessment. After she died, the siblings claimed their brother had committed elder financial abuse. Again, the claims were withdrawn after seeing the report.
In these cases, as well as many others, the estates were preserved, the client’s wishes were carried out, and privacy was maintained.
What’s the takeaway?
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 families. 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 jumped from $650,000 per person in 2001 to $5.43 million per person in 2015). By contrast, the potential wealth-destroying risk posed by estate litigation is exponentially greater. In fact, according to a study cited in a WSJ piece entitled When Heirs Collide it’s a risk that actually impacts as many as 70% of all families (see here).
Bottom line, it’s litigation — not taxes — that most families need to worry about. And to build your tool box for this kind of planning you’ll want to start following authors like Dr. Blum. His clinician’s view of the world is indispensable to working estate planners and litigators alike.