Clients occasionally ask to create estate plans leaving property to beneficiaries who are not their natural heirs (next of kin). When they do, it might be because of estrangement, or because of the involvement of that heir’s family (think in-laws), because one of the heirs doesn’t need the money, because of how they might spend once received or because they do not have close natural heirs. When it comes to estate planning, equal isn’t the same as fair, explains the article “Are Unequal Inheritances Fair?” from Advisor Perspectives.
The first will I ever drafted as a law student had this issue. The elderly mother wanted to leave everything she had to two of her four children. The two she wanted to provide for lived far away, had very few assets, but still helped mom with her bills or spent time with her. The two remaining children were much better off, but also spent far less time with her despite living in the same city.
She loved her children equally, but recognized that the value of the inheritance was different for the children who supported and who were in need compared to the two who did not support her and were self-sufficient. In her case, I drafted the will leaving everything to the two supportive daughters, and we used ethical will language to explain the reason why she didn’t leave everything to all four. (see here for info on an ethical will: https://www.galliganmanning.com/estate-planning-attorneys-recommend-that-clients-consider-writing-an-ethical-will-or-legacy-letter/)
But, that solution doesn’t always work, especially where the heirs don’t get along, or would become suspicious of each other. This is exacerbated where a child is being cut out for reasons like substance abuse or family difficulties. So, here are a few things to consider when removing a natural heir from your estate plan or substantially reducing their share.
Be Direct. Clients often are worried about hurting the feelings of the heir they cut out, and so don’t want to be direct. I handled an estate of a client who reduced the share of one child compared to the other. This was a very complicated estate, and the attorney who prepared the last estate plan made a subtle change in a very complex document so that one child wouldn’t get a particular trust fund and the other would.
The estate turned out better than anticipated, but the problem with a subtle cutting out is the child doesn’t believe its true or that is what their parent wanted. They don’t believe mom or dad made this choice, and instead they believe the other child (who typically is going to be the executor in this situation) is cheating them, unduly influenced them, the attorney made a mistake or that mom or dad lost capacity. This leads the fight directly from one beneficiary to the other.
Instead, being clear and direct about your intentions directs the beneficiary’s focus on what you wanted (which is where estate planning should be focused) instead of looking for ways they wronged. The law allows you to leave the property to whom you want, so better to be clear about your intentions then to leave your family to fight over it.
Use a Trust. The value of the trust in this situation varies a bit amongst the states, but generally stated, using a trust is better than a will when not leaving everything to your natural heirs. Wills are very public, and depending on your state may require notice to your heirs, whether or not they are a beneficiary. Trusts can both make the administration more private and can avoid fighting. Trustees also often have more power to close the trust or handle disputes than an executor who is handling a will.
Leave Property in a Different Way. In some cases, clients want to remove a beneficiary because of a concern over the child’s receipt of assets. For example, if a child is bad with finances, has creditors, a messy marriage, substance abuse issues and so on. It is a situation where the emphasis isn’t “I want to leave everything to two of my three children,” but an instance where “I don’t want to give one money, so it has to go to the other two.” In this case, it’s possible that you could still leave the difficult child an inheritance, but do so in a way to protect the inheritance and the beneficiary from the money.
For example, I have regularly written blogs about leaving inheritance in trust for a beneficiary and we regularly draft estate plans using them. If the problem is spending habits or addiction, you could leave the inheritance to a child in a trust and leave someone else in charge of the trust. That trustee could spend the money on their behalf so that the beneficiary receives the value of the inheritance without direct control, which is where the problems arise.
Similarly, beneficiaries who have disabilities and may use government benefits could receive a trust which keeps the assets outside of their control (so not countable for their benefits) but is still available should they need it. Likewise, leaving property in a trust to a child where you are concerned about divorce helps protect the property by keeping it separate from the marriage.
You can see this article for more details and ideas on how trusts help beneficiaries: https://www.galliganmanning.com/protecting-inheritance-from-childs-divorce/
In sum, the reason a client wants to remove a beneficiary might be addressable in a different way so that they can still receive their inheritance.
None of these are perfect solutions, but are worth considering for your family if you wish to remove or reduce an heirs share.
Reference: Advisor Perspectives (Aug. 22, 2022) “Are Unequal Inheritances Fair?”