Disinheritance: Regardless of the Purpose, Proceed with Caution

While disinheriting a child is sometimes a punitive action, it can also be a positive planning strategy that equitably reflects the realities of a family's situation.

When one hears of a parent disinheriting a child, it may be natural to assume that the disinheritance was prompted by irreparable damage to the parent-child relationship and perhaps imposed to punish a wayward child.

While those situations certainly exist, in our experience it is more common for disinheritance to stem from a parent's good intentions in recognition of the needs and circumstances of one or more of their children. In those cases, what might look like disinheritance is more accurately a thoughtful strategy to address one child's lack of need, another child's extraordinary needs, or a child's inability to appropriately handle an inheritance.

Before we go any further, we should emphasize the importance of communicating your plans to your heirs, while you are alive and able to explain your intentions. A child discovering that he or she was disinherited after the death of the parent will likely be devastated by the news, received in conjunction with the loss of their parent, even if there had been an estrangement or major disagreement.

Unequal Needs

We have written before about how equitable treatment, rather than equal treatment, should guide many parents in deciding what each child should inherit.

Consider this simple example involving two adult children, John and David. John has achieved financial success, accumulated considerable wealth, and has no material need for a financial inheritance. Meanwhile, through no fault of his own, David has consistently struggled to make ends meet and provide for his family.

In this case, disinheriting John - at least with respect to assets of tangible value - and directing the entire financial estate to David might be the fair approach. This might be especially true if David has special needs - such as a physical disability or mental illness - or has a child whose special needs strain the family's finances.

Financial Protection

A child's addictions, financial mismanagement, or marital issues are common reasons that a parent would seek to disinherit that child or at least restrict access to their inheritance. The parent may fear what would happen if the child inherits a large amount of money, perhaps to fuel destructive behaviors or to satisfy creditors or a bad spouse.

In addition, parents of a child with disabilities might unnecessarily disinherit the child so as not to have inherited assets threaten their eligibility for government benefits.

Such dangers can be minimized, or prevented altogether, with proper estate planning. A well-drafted trust and the right trustee can help provide for the child and help deal with the child's unique circumstances.

In cases where a parent is looking to leave an inheritance without directly giving a child access to it, creation of a trust to control the heir's inheritance is often the best solution. The trust can provide the trustee with specific instructions about how and when distributions can be made to beneficiaries. This can include incentives (e.g., attending college, working at a full-time job, or staying drug- and alcohol-free) and provisions to ensure that disabled children are not forced to spend-down their trust fund or lose their public benefits. The trust can also place assets out of the reach of creditors and divorcing spouses.

Estrangement

To return to the original premise of this article, there are situations in which, due to the nature of the parent-child relationship, the parent simply does not want to leave anything to a child.

In such instances, disinheritance should be carefully planned and specifically spelled out in the parents' estate planning documents. It may also be appropriate to explain the reasons for the disinheritance.

It is crucial that disinheritance be done with the assistance of the parents' estate planning attorney, who can advise them in the context of their overall planning objectives and documents. We are aware of instances in which parents, acting in anger, executed a do-it-yourself document separate from their estate plan with the intent of disinheriting a wayward child.

Such side-documents have a high risk of being legally defective and ripe for challenges from the disinherited child. A successful legal challenge can be financially devastating to the challenger's siblings, who may be forced to relinquish inherited assets, and even detrimental to the challenger if it allows him or her to pursue self-destructive habits.

Get Help

Whatever your motivation in disinheriting a child or creating an imbalanced inheritance situation, discuss your plans with an attorney who can anticipate the risks and benefits and help you understand all of the options available to you in achieving your objectives.

Adapted from the Daily Plan-It newsletter