Estate planning nightmare: How to avoid fights over your savings

Dollar sign in nest

Read about estate planning, and you'll see a nearly universal emphasis on, first, having a will and, second, leaving surprises out of it.

Don't leave your property to some of your children but not to others, for instance, or make financial provisions for your mistress or a child that no one in your family knows about.

Surprise bequests are a great way to ensure that your family will fight over whatever savings you leave behind, perhaps hurting one another enough to create permanent estrangements.

If you must leave a controversial bequest, have the decency to talk about it with your family before you die. Take responsibility for the battle you're creating.

This lesson was vividly brought home to me by a friend's situation. (We're masking my friend's identity here to protect the innocent -- and the guilty.)

The friend's parents are divorced, and her father had remarried, choosing a woman who had once been married to his brother, now deceased. The friend's former aunt by marriage was now also her stepmother, and her cousins were also her stepsiblings.

The blended family got on well, celebrating holidays together and hanging out at other times, too.

My friend's father had had cancer several times. When the last recurrence was declared terminal, he gave his biological children, their spouses and his biological grandchildren each a check for $10,000.

Written against his own savings, the checks seemed to be a generous gift from a man who wanted the pleasure of being generous while he was still alive to enjoy it.

He had three children, all married, and four young grandchildren, so altogether he gave away $100,000.

After the father died, the children learned the marriage wasn't a happy one. In fact, he had probably gifted the money in part to take it away from his second wife, who would otherwise (by law) have inherited a substantial portion of those funds.

Worse, his wife had counted on that savings to fund her own old age. Without it, she would have to rely on her children's financial support.

The wife was angry. The stepchildren were angry -- they hadn't planned on supporting their mother for the next 20 or 30 years.

Their beef was mostly with my friend's dead father, but he wasn't around to take the blame. In his absence, they railed against his biological children and grandchildren, who now had the money the father's widow would otherwise have had.

My friend and her siblings also inherited her father's life insurance proceeds, which amounted to nearly $1 million. (Life insurance payouts don't go through probate, so a policy owner can typically make anyone they like the beneficiary.) Even split between them, the insurance proceeds were much more than the $10,000 each that was at question.

My friend and her siblings have careers. They weren't broke before their father died, and they certainly weren't hurting after they received the life insurance money.

Did my friend and her siblings give their stepmother the $10,000 each that their father had given them?

They could easily have done so. The gift was theirs to spend as they liked, and the individual amounts weren't enough to trigger tax consequences.

Nope. Dad had wanted them to have it, and so, by golly, they were going to keep it.

Last I heard, the children and the stepchildren weren't speaking to each other. The stepmother wasn't speaking to her stepchildren, who have kept a firm hold on every penny their father gave them.

If nothing changes, these people will likely be permanently estranged. Future generations, who had nothing to do with the mess, probably won't know each other -- all because of a man who didn't have the guts to have his own fight with his wife.

If you're writing a will, don't put your heirs in the same position. Deal with your own conflicts and be open about your intentions.

And if you're the heirs in a setup like this one, remember that money comes and goes.