Toni Patillo – Santa Monica and Palisades Real Estate Agent

How To Avoid The Problems Of Inheriting Wealth

It’s the worst time to talk about finances. You’ve lost a loved one. You’re grieving, you’re consoling other family members and there are arrangements to be made. The last thing you want to deal with is what you may or may not be inheriting. Especially because you know it could lead to conflict if it’s not properly spelled out.

It get’s even worse. Are you inheriting your parent’s house or other properties? Well prepare yourself for things to get incredibly complicated. The fact is Boomers are expected to inherit $8.4 trillion with a large portion being in Real Estate. That’s a whole lot of potential trouble coming down the road.

So, what’s the alternative?

Here are a few tips to help you avoid the problems of inheriting:

  1. Update Your Estate Plan Regularly – 

    Have an Estate Plan created by a recommended estate plan attorney and update it regularly. This is crucial. You may have gotten divorced and remarried. What if you forgot to disinherit your ex? He or she could cause major problems for your new spouse.

  1. Address Personal Property Separately – 

    Leave a separate list of personal property with instructions as to who should inherit each item. This will help avoid fighting within the family. Most states admit a separate personal property list (sometimes called a Personal Property Memorandum) as part of the will.


  1. Clearly identify gifts and loans –  

    Parents often help adult children. It ‘s the parent’s prerogative to structure their help as either loans or gifts. Unpaid loans from mom and dad can be a source of conflict and jealousy. Parents should resolve uncertainty by addressing loans and gifts in their estate plan.

  1. Hold an open discussion on special assets –  

    There are times when you need to have a conversation with family whether you want to or not. Issues like care for a handicapped child, succession of a family business, or continued use of a vacation home require parents and children to be on the same page.

  1. Properly fund trusts –  

    All assets should be funded or appropriately re-titled into a trust to avoid probate and confusion as to the testator’s intent. For example all life insurance policies and annuities should name the trust as beneficiary.   If for tax or other purposes it’s appropriate to name beneficiaries directly, include a statement in the trust that all beneficiaries are to receive an equal share, taking into consideration assets that pass outside the trust.

  1. Avoid joint ownership –

    Joint ownership (i.e., placing a child’s name as a joint owner of a parent’s asset) is an inefficient method of passing assets at death. Adding a beneficiary as an owner of assets like real estate creates significant and sometimes, irrevocable lifetime rights. It can expose the donor to the co-owner’s liabilities and limits the donor’s ability to change his or her mind in the future. The most efficient and predictable plan is to fund all assets into a trust.

  1. Appoint a committee of fiduciaries – 

    Naming a committee of fiduciaries has a number of benefits: Two heads are better than one. More importantly, a committee keeps each member honest. Also, multiple fiduciaries can share the workload and minimize burnout and resentment.  Here’s another potential issue. An overburdened fiduciary may not respond to inquiries in a timely manner. This raises suspicions that the fiduciary is trying to hide something.

  1. Balance the needs of second spouses and children – 

    This is a big one. Second spouses and children are infamous for having serious problems when it comes to dividing assets. Consider an outright transfer to natural children at the death of the first spouse of an amount that will not jeopardize the well being of the surviving spouse. Parents who completely withhold all distributions to their children until after the death of a stepparent create quite literally a deathwatch.

Inheriting assets, Real Estate or otherwise, can be a blessing or a curse depending on how well you prepare. I highly recommend working with multiple experienced professionals to help you get things in order. You will be giving your heirs the time they need to grieve and the inheritance that you intended.

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