Complex Estate Plans Can Increase Likelihood of Litigation

A recent decision from the Ohio Sixth District Court of Appeals involves a farm estate and a lawsuit. The facts are complex, but at its core, the case involves parents who owned and operated a sizeable farming operation and left their assets to their son and daughter. The court’s written analysis makes clear that the siblings do not get along, a factor that likely contributed significantly to their dispute. The case reflects a combination of complex estate planning, family tension, and the parents’ desire to exert control over assets after death. Any one of these factors can increase the risk of estate litigation; taken together, they make a lawsuit far more likely.

The parents’ estate plan, and the litigation that followed, involved all of the following:

• Multiple trusts
• Several LLCs holding farm assets
• Farm leases between entities and family members
• Trustees and trust protectors
• Allegations of self-dealing, breach of fiduciary duty, and lack of cooperation

This list illustrates both the complexity of the parents’ estate plan and the level of conflict between the heirs. While this was an uncommonly complicated plan, it may have been necessary given the parents’ assets, goals, and family circumstances. However, when estate plans become more complex, the potential for misunderstandings, administrative difficulties, and conflict also increases.

There are at least three lessons to be learned from this court case. First, estate plans of this level of complexity are sometimes necessary, particularly for large farming operations or families with unique goals. However, this case serves as a reminder that complexity comes at a cost. When multiple planning strategies and conditions are used with an already strained family relationship, the result can be confusion, administrative difficulties, and litigation. In some situations, a simpler estate plan may better serve both the family and the farm.

Second, complex estate plans can outrun the understanding of the families tasked with implementing them. In other words, does the family truly understand the plan and how it is intended to work over time? As with most things, simpler plans are generally easier to understand and administer. In some cases, attorneys may design technically sound plans that are not fully understood by their clients, increasing the risk of mistakes and conflict after the parents are gone.

The next lesson involves consideration for the non-farming heir. Before her death, the mother changed their estate plan to give the son, the farming heir, significant control over land the daughter was due to inherit.  If the relationship between the siblings was already strained, placing one sibling in control of the other’s assets without notification was almost certain to magnify that tension.

Many farm transition plans give the farming heir disproportionate control over assets out of necessity. However, it is critical to consider the impact of that control on the non-farming heir. Was the non-farming heir informed of the extent of the farming heir’s control? In this case, it appears that the son was given control over the daughter’s assets as the result of a trust change that was not disclosed to the daughter, an omission that only added fuel to an already volatile situation. Additionally, if a non-farming heir’s assets are overly restricted within a trust or LLC, their practical value and usefulness can be greatly diminished.

The third lesson is closely related to the first: control from the grave has consequences. In this case, the parents clearly wanted to ensure that the farming heir continued the family farming operation—a common and understandable goal for farm families. To achieve that goal, however, their estate plan allowed little or no control for the daughter over the land she was to inherit.

During their lifetimes, parents are often able to referee disputes between children and maintain at least a measure of peace within the family. When the parents are gone, so too is the referee. Without their presence, the control that parents once exercised directly can manifest very differently after death. In this case, the parents’ attempt to control the operation and use of assets from beyond the grave appears to have caused the daughter significant distress and frustration, ultimately resulting in litigation.

As noted above, complex estate plans are sometimes necessary, and that may have been true in this case. However, whenever possible, farm transition plans should be designed with as much simplicity as circumstances allow. Planners should carefully consider the impact on non-farming heirs and recognize that post-death control mechanisms may not function as intended once the parents are no longer present. Families should ensure that they understand how their plan will work, that it minimizes the potential for family conflict, and that any post-death control is likely to be accepted by the heirs.

Working with an experienced attorney who regularly assists farm families is an important first step in reducing the risk of conflict in an estate or transition plan. A knowledgeable attorney can help design a plan that achieves the family’s goals while minimizing administrative difficulties and the potential for litigation. While no estate plan can completely eliminate the risk of conflict, careful planning and thoughtful design can significantly reduce it.

You can read the relevant court case here.