Estate Planning and Sibling Rivalry

Transcript of Podcast Episode 265

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, we’ll be discussing estate planning and sibling rivalry.

So much has been written in the past few years about sibling rivalries: Prince Harry vs. Prince William, Britney Spears vs. Jamie Lynn Spears, and the children of Aretha Franklin.

But even in a smaller estate, sibling rivalry can cost a lot of money, and more importantly, destroy the family relationship. What are some tips to avoid such a tragedy?

Perhaps the first thing is to understand human nature. A parent might expect a harmonious distribution and shared joy of days gone by. But grief can sometimes bring out the worst in people. For whatever reason, particularly after the loss of a parent, siblings may be less likely to be logical in their emotions. Long dormant resentments can suddenly awaken when the parent is no longer there.

Almost every parent wants to treat their children fairly, if possible. But as we’ve discussed before, there are situations—special needs, drug dependency, spendthrift ways—where that may not be advisable.

As a parent, you need to recognize that what you see as fair treatment of your children may not be perceived that way. Resentment over a perception of childhood favoritism, lack of attention, or a lack of financial support, can suddenly boil over when the parent is no longer there.

One of the worst things a parent can do may be to ignore any existing tensions. They’re not going to disappear if you’re no longer in the picture. It’s better to talk things through now while there’s still time. It may be awkward, but it’s better to deal with it now rather than get an unpleasant surprise later on. Transparency is key.

And you need to listen.  Let them tell you what they expect. You may get a surprise.  Sometimes smaller items—a souvenir from a vacation long ago, a trinket that hung above your refrigerator—might have an important sentimental value you didn’t know about.

And you don’t necessarily have to treat all your children equally. But if you’re willing to explain it all, they may be able to understand.

The selection of a representative for your estate, such as an executor or trustee, is a critical decision that rarely gets the attention it deserves.

Many parents will designate one of their children as a trustee or executor of their estate. This is a responsibility they are likely to bestow on someone they trust to do the right thing. But it doesn’t always work out.  Trust is not necessarily the only consideration.  There are others such as business judgment, the ability to negotiate, attention to detail, the ability to compromise, and more.

When it comes to dividing assets, there are inevitable decisions that may alienate one of the affected parties and inadvertently create the type of conflict you’re trying to avoid. And then there’s the issue of compensation. An executor or trustee does not necessarily work for free. Executor fees can be as high as 5 percent and are usually specified by state law. In some cases, the fee may not be worth all the aggravation, but the amount can be substantial, and it could cause tension between siblings.

For some people, rather than appointing a family member, it might be better to appoint a disinterested third party as trustee or executor. This can help ensure a level of neutrality—real or perceived—that can minimize intrafamily conflict.

And don’t forget about using lifetime gifts. This can help minimize future issues. Once it’s gifted, there’s an opportunity to discuss the reasons why the gift was made and therefore, less to argue about when you’re gone. In 2024, you can give away up to $18,000 per person annually, gift tax-free, to whomever you want.  This is known as the annual gift exclusion amount.  You also have a lifetime gift exemption amount which, for 2024 is $13.61 million per person.

Sibling rivalry may or may not be inevitable. As a forward-looking parent, you may not be able to anticipate a future conflict, or even be able to minimize an existing one. Maybe the best you can do is to provide inclusion and transparency for your children. The rest is up to them.

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