Think Twice Begore Disinheriting A Loved One

It’s a mistake to disinherit a child just because (1) you cannot stand their spouse (your in-law), (2) they are having financial difficulty, (3) they are incapable of managing finances, or (4) they are being supported by a governmental program. Think twice before disinheriting a loved one.

For instance, let us assume hypothetically, Carol (a widow) has five children: Jan, Marsha, Cindy, Greg, and Peter.

Jan is married to Frank who Carol has never liked. Should Carol disinherit Jan because she does not like Frank? She could. She could also leave Jan’s share in a trust to be used for her benefit. If that trust were drawn properly, Carol could make sure that Frank will not directly benefit and that Jan would not easily squander the money. Carol could also make sure that if Frank and Jan got divorced, Frank would get none of Carol’s money. In addition, Carol could direct that when Jan passes, what funds remain in Jan’s trust shall be given to her son, in trust, for his education.

Marsha is about to file for bankruptcy and she owes $250,000 to creditors. Should Carol disinherit Marsha because she has creditors? She could. She could also leave Martha’s share in a trust for Marsha’s benefit. Could Marsha’s creditors take the money? Not if the trust were drawn properly.

Cindy can’t handle money. She is a spendthrift. Should Carol disinherit Cindy because she spends unwisely? She could. She could also direct her share to be held in a trust for Cindy’s benefit. Carol could create incentives so if Cindy was gainfully employed, Carol could direct funds be disbursed to match her income. Or, better yet, Carol could direct that if Cindy was gainfully employed and was maximizing her retirement contributions, then the trust would disburse funds equal to Cindy’s pay. The possibilities are endless.

Greg and Peter have disabilities and are currently benefitting from government programs. Should Carol disinherit Greg and Peter in order to make sure they will not lose their government benefits? She could. She could also leave their share in a supplemental needs trust. If the trust were drawn properly, it could provide funds for Greg and Peter to supplement the benefits they are receiving. In other words, if assets are left “in trust” (a special needs trust or supplemental needs trust) this can prevent your loved one from becoming ineligible for the benefits they get from the government. At the same time, you do not need to disinherit them.

It is difficult enough to think about these things, but they are important. In all events, you should seek professional guidance in matters relative to your family property. Using trusts to shape beneficial interests and control use of funds and remainder interests, if done properly, can provide tremendous benefits for your family.

Contributed by:

Mark F. Winn, J.D., Master of Laws, LL.M. in Estate Planning, is a local tax, asset protection and estate planning attorney.