Preventing Lawsuits Among Family Members

Gifts from parents to children are often made and are a well-intentioned method of estate planning; however, problems can result which are preventable.

Where a parent wishes to give a gift to one child among several, several steps should be taken to protect the recipient.  Imagine the elderly mother who hands her diamond ring to the eldest of her three daughters.  Mother dies shortly thereafter, having told no one else of the gift.  The daughters review the contents of mother’s home and the two inquire as to the location of the diamond ring.  The eldest daughter says she received it last month.  Is she believed?

This scene may occur in much more valuable gift situations.  Suppose father deeds his retail property to the son who worked with him in his store, to the exclusion of his other three children.  Father dies shortly thereafter, leaving little else in his estate.  The three children who received nothing are bitter and may sue their brother.  Numerous suits of this type occur.  It may be alleged that he didn’t know what he was doing.  Suits of this type carry a huge cost both emotionally and financially.  A permanent estrangement occurs between brothers and sisters.  Even when such a suit is groundless in fact, it is very costly to defend.

Several steps can be taken to protect the validity of the gift and to prevent this type of law suit.  First, the parent should advise all the children of the intention to make the gift and the reasons for it.  To protect the recipient from later attack by siblings, a family agreement could be put in writing and signed by all the children, acknowledging the gift, the underlying reasons, and waiving the right to sue.

In addition to the intra-family problems, gifts of substantial size can cause many other consequences.  Federal tax law allows the donor to give up to $14,000 (in 2014) to any one person in any one calendar year without payment of gift tax.  Spouses can combine their gifts to give $28,000 together to one person in one year.  Gifts in excess of these limitations should be reviewed carefully by an accountant in advance and the proper gift tax returns should be filed.  Tax can sometimes be deferred until death or avoided altogether if the gift is carefully structured.

A gift should only be made where the donor has no further need of the property or asset to be given.  A parent may sometimes desire to give a gift to a child based on the assumption that the child would give it back in the event of need by the parent.  Unfortunately, a child may be unwilling or unable to return the property.  The donor must be entirely comfortable that the gift will not be needed in the future.

Prior to making any gift, it is advisable to consult an attorney and an accountant, as there are legal and tax consequences which can cause unfavorable results.  While the owner of property has full ability to give it away, various problems can occur, which careful planning can avoid.

By Lisa Pepicelli Youngs, Esq.

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