One of the most emotional and potentially explosive estate planning decisions involves the disinheritance of a child. While the immediate reaction to the the idea of disinheritance is likely to be visions of a disobedient, rebellious child who never followed the family rules, there are actually numerous reasons that a parent might consider the disinheritance of a child. Before making such an important decision, the advice of an estate planning attorney may provide some alternatives that are less drastic.
A difference in resources among children is one reason often given for disinheritance. For example, you have one child who was always a high-achiever and has risen through the ranks of management and is now CEO of a Fortune 500 company. Your other child, while intelligent and capable, has had some bad luck along the way. After starting a company that was successful for awhile, it failed during the downturn in the economy and left your child in a bad financial situation. In this case, it might make sense to leave most or all of your assets to your child who has made an effort but is in a much less secure position financially.
But what if those roles reverse at some point after your death? What if the CEO’s company fails and the other child invents a better light bulb? How could you change their shares of inheritance? A sprinkle trust is designed to evaluate the finances of your heirs on a regular basis. If the circumstances change, the distributions can change.
Or maybe you do have a troubled child who has suffered from substance abuse issues and you really want to leave them something, but you are afraid that they will waste it all on their addiction. Or perhaps they are in recovery, but you are afraid that a sudden windfall of money might tempt them to return to their habit. There are several estate planning choices you could make that would allow them to enjoy an inheritance while still addressing their illness. A trust with special requirements that your child have a drug test prior to any distribution from the trust and other periodic tests that could require entering an addiction program before any further distributions.
If you have a child who has an illness or disability that may keep them from earning an adequate income, you can set up a special needs trust for their care. These trusts can not only support the child throughout his or her life, but can also direct caregivers of other things you want for your child. Or if the child receives government benefits as a result of the disability, a properly drafted special needs trust can make sure that they do not lose those benefits because of a sudden windfall of money. Because any inheritance does not go directly to them, it is not counted toward their income or net worth.
Of course, if disinheritance is really what you intend, there are many pitfalls to avoid to make it work correctly. The disinheritance of anyone who would otherwise be entitled to a share of your estate requires careful planning and precise drafting of the documents. You should start with the assumption that the disinheritance will be contested. Then make sure that every possible objection can be answered. An experienced estate planning attorney will be familiar with all of these options and direct you to the best choice for your family’s situation.