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The more beneficiaries, the greater the chances for estate distribution challenges

by Legacy Plan
August 28, 2023

Even in the simplest of circumstances, estate distribution can present its share of complications. But for people with multiple beneficiaries, the complexity can be magnified, leading to potential disagreements or even legal challenges. The more beneficiaries involved, the higher the chances of a beneficiary not being satisfied with the outcome of the estate distribution. Understanding the underlying reasons for potential disputes and the strategies to prevent them can help to reduce the chances of family disharmony and a smooth transition after a loved one’s passing.

What is a beneficiary?

a hand holding a pen signing a will

A beneficiary is an individual, group or entity that is named in a legal document or financial account, such as a will, trust, insurance policy or bank account, to receive assets or benefits from someone after they die. The assets could include money, real estate, personal property, securities, retirement plans and other and valuables and possessions.

An estate plan is a comprehensive blueprint that outlines how an individual's assets should be distributed upon their death, and one of the key components of an estate plan involves designating beneficiaries.

Who can be a beneficiary of an estate?

As mentioned, beneficiaries can be individual people, groups of people or entities such as charities that are earmarked to inherit assets. The classifications of beneficiaries range from primary and contingent beneficiaries to more specific designations such as minors, charities, trusts and even legal entities. Each type has its unique characteristics and implications in the grand scheme of asset distribution.

Primary beneficiaries are the first in line to inherit assets. For instance, if someone lists their spouse as the primary beneficiary for their life insurance policy, then the spouse will be the one to receive the payout upon the policyholder's death.

Contingent beneficiaries, meanwhile, are those individuals or entities that are essentially the backup recipients. If the primary beneficiary is deceased or unable to claim the inheritance, the contingent beneficiary will then receive the assets. For example, if someone's primary beneficiary is their spouse and their contingent beneficiary is their child, and both the individual and their spouse tragically die in a car accident, the assets would then pass to the child, known as a minor beneficiary. By the way, beneficiaries who are underage can’t legally manage inherited assets, and a guardian or trust would typically control access to inheritance until the child reaches the age of majority.

Charitable organizations also are commonly named as beneficiaries of estates, enabling people to leave assets to causes that they care about and wish to support. Aside from charities, other legal entities like businesses, schools or foundations can be named beneficiaries.

Another non-person that can be a beneficiary is a trust. An individual can designate a trust as a beneficiary of assets instead of passing assets directly to a person, charity or organization. Using a trust as a beneficiary not only keeps the asset out of probate, but it also provides instructions to the successor trustee on how to distribute or manage the assets based on terms and rules established by the person (known as the grantor) who created it.

If no specific beneficiary is named, or if the primary beneficiaries or contingent beneficiaries are no longer alive, assets might default to the individual's probate estate, which will then distribute the assets according to the will or state intestacy laws if no last will and testament exists or is invalid.

What causes disagreements among beneficiaries?

When there are multiple beneficiaries of an estate, tensions can rise and disagreements may follow, often stemming from deeply personal beliefs, past family dynamics or differing interpretations of the deceased's wishes. While the distribution of assets might seem straightforward, a wide array of underlying factors, many related to inadequate communication, can complicate matters. With multiple beneficiaries receiving an inheritance, it's not uncommon for perceived inequalities to arise among them, even if the person who created the estate plan had the best intentions.

One prominent situation that can fuel disagreements involves varying financial needs of beneficiaries and the monetary value of assets. A common scenario where perceived inequality arises is when the testator divides assets based on the beneficiaries' financial needs. For instance, consider a parent with two children: one child is financially stable with a successful career, while the other has struggled financially. The parent might decide to leave a larger share of the estate to the child in need. While this might seem fair from the testator's perspective, the financially stable child might perceive this as a slight or lack of recognition of their achievements. In other words, if one beneficiary believes they are receiving less than their fair share, especially compared to others, it can lead to resentment or jealousy.

Disputes also can arise if multiple beneficiaries feel a strong emotional connection to the same asset. Family heirlooms, homes and other assets often hold more than just monetary value; they can be priceless sources of memories, symbols of family history and tangible links to past generations. This deep-rooted sentimental value can at times eclipse the actual financial worth of the item in question.

A family home, for instance, may represent childhood memories, family gatherings, milestones and more. It's a place where laughter echoed, tears were shed and countless memories were formed. Similarly, a family heirloom, such as a piece of jewelry, a painting or even a cherished book, can symbolize family traditions, stories or the legacy of a beloved relative.

Given the sentimental value of heirlooms and related property, it's natural for multiple beneficiaries to feel a strong connection to the same asset. For instance, siblings might both associate the family home with feelings of security, love and belonging. A beneficiary who was financially dependent on the deceased may feel entitled to a larger share, especially if they believe it's necessary for their survival.

Indeed, the convergence of emotional attachments on a single asset can lead to heightened tensions and disputes. For example, two or more beneficiaries might feel equally attached to an heirloom, each believing they have a stronger or more "legitimate" claim based on personal memories or experiences tied to that item. Beneficiaries might attribute sentimental value differently. While one may see an old piano as a valuable memory of lessons and recitals, another might see it as a reminder of a deceased parent's passion for music. Unlike monetary assets, sentimental items are irreplaceable. While money can be divided, it's impossible to distribute memories or feelings attached to a singular item, like a family portrait or a grandmother's engagement ring.

Unfortunately, these disputes over items with sentimental value can cause lasting rifts in family relationships. Emotions run high when personal histories and memories are at stake. A disagreement about who inherits the family home can transform into a broader conflict, with old grievances resurfacing and personal narratives being challenged. Also, past disagreements, rivalries or misunderstandings among family members can escalate tensions during estate distributions.

A lack of clarity by the decedent is another potential problem. Ambiguities in the will or estate plan can lead to multiple interpretations, giving beneficiaries the room to challenge the distribution.

How can I avoid disagreements over my estate?

two people each holding a puzzle piece placing the together

Clear communication is one of the most effective ways to prevent disputes over the distribution of your estate. In other words, it’s important to discuss your estate plan with all beneficiaries while you're still alive to prevent disastrous surprises. Open communication allows for any concerns to be addressed directly and provides clarity regarding your wishes. A letter of intent, which is a private document that is separate from a will (which becomes a public record when submitted to a probate court) is often left behind as part of the estate plan to provide a detailed explanation of your intentions and reasoning to beneficiaries.

Testators are often advised to include specific and detailed documentation in their will and trust. The more clarity you provide on who gets what, the less room there is for interpretation and disagreement. While it's not always feasible or desired, distributing assets equally among beneficiaries can reduce feelings of favoritism or inequity.

One point of friction commonly takes place when individuals have different levels of closeness with various family members. A parent might have had a strained relationship with one child and a close bond with another. If the will reflects this dynamic, the child with the lesser share might see it as a posthumous punishment or a reflection of their worth in the eyes of the parent.

What is a no-contest clause?

One strategy to avoid a challenge to your estate plan is to utilize a no-contest clause. This is a provision that discourages beneficiaries from contesting the will or trust. If a beneficiary challenges the will or trust and loses, they may forfeit their inheritance.

Trusts also can be beneficial for managing complex estate distribution situations. For instance, revocable living trusts allow assets to bypass probate, leading to quicker distribution. Staggered distributions can be set up for younger beneficiaries, releasing assets at various life stages or ages. Special needs trusts, meanwhile, can ensure that beneficiaries with disabilities are cared for without compromising eligibility to receive government benefits.

The appointment of a third-party personal representative (also called an executor) or trustee can help minimize allegations of bias or unfairness. This person or institution can make decisions based on the intent of the will or trust, free from family dynamics. Another suggestion is to encourage beneficiaries to use mediation or another form of alternative dispute resolution before heading to court. This can keep the matter private and potentially save on legal costs.

Why are periodic reviews important?

Estate planning is not a one-time endeavor. As life unfolds, personal circumstances, relationships and financial landscapes change, often in unpredictable ways. Ensuring that your estate plan remains aligned with your current situation and wishes is crucial, not only for the accurate distribution of assets but also for preventing potential disputes and disharmony among surviving family members.

Over the years, families evolve. Marriages occur, children are born and sadly, some family members pass away, requiring that beneficiary designations be updated. Furthermore, relationships within the family can strengthen, weaken or transform. An estate plan that accurately reflects and accommodates these changes can prevent feelings of neglect, favoritism or oversight, which are common sources of disputes. As life circumstances change, it's crucial to periodically review and adjust your estate plan to reflect your current wishes and family dynamics.

Reviews and updates also are important because the value and nature of your assets might change significantly over time. New properties might be acquired, businesses might be started or sold or you might receive a large inheritance. Periodically adjusting your estate plan to mirror these financial shifts ensures that the distribution of assets remains fair and in line with your wishes.

Life insurance policies, retirement accounts, and some other financial products allow you to name beneficiaries directly. Over time, these designations might become outdated, potentially leading to unintended recipients or disputes among beneficiaries if not regularly reviewed and updated.

Meanwhile, tax laws and estate regulations can be modified, impacting how your assets will be distributed or taxed upon your death. Regular reviews can ensure that your estate plan is not only compliant but also optimized according to current laws.

Another reason to review and update your plan involves shifts in your wishes. As you age and gain more life experience, your perspective on who should inherit your assets and in what proportion might change. Periodic reviews allow your estate plan to evolve with your changing worldview and priorities.

An outdated estate plan can be ambiguous or contradictory, especially if new assets are acquired or if previously designated beneficiaries predecease the estate holder. Regularly updating the estate plan ensures clarity, which is essential to prevent disputes. Plus, if you relocate to a different state or country, it's critical to understand and adapt to the local estate laws and regulations, as these can differ significantly from one jurisdiction to another.

Estate distribution with multiple beneficiaries can be a challenging endeavor, especially when trying to balance individual wishes with the potential for family disagreements. However, with careful planning, open communication, and the guidance of professionals, it's possible to ensure your legacy is passed on according to your wishes while preserving family harmony.

How do I create an estate plan?

There are numerous options and scenarios to consider when developing an estate plan that protects your legacy and achieves your objectives, and important decisions should be made with the advice of qualified lawyers and financial experts. Membership with Legacy Assurance Plan provides members with valuable resources and guidance to develop comprehensive estate plans that take life's contingencies into consideration and leave a positive impact for generations to come. Legacy Assurance Plan members also receive peace of mind that a team of trusted, experienced professionals will assist them in developing legal, financial and tax strategies that will meet their needs today and for years to come through periodic reviews.

This article is published by Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at legacyassuranceplan.com.

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Email - info@legacyassuranceplan.com
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