Personal Business: DISINHERITANCE
WANT TO CUT BINKY OUT OF THE WILL, DO YOU?
Disinheritance conjures up the image of the elderly tobacco heiress Doris Duke vengefully dumping her adopted daughter, Chandi, from her $1.2 billion will. So you would think this action is not for the average person. Think again. "People disinherit relatives all the time," says attorney William D. Zabel of Schulte Roth & Zabel, who wrote Duke's will and authored The Rich Die Richer and You Can, Too. "For all reasons--money, sex, power, control."
In fact, Louisiana is the only state that forces parent-to-child inheritance. Elsewhere, people can will what they want. Leaving a spouse financially bereft is more difficult and requires careful estate planning. Most states grant spouses one-half or one-third (the amount may depend on whether there are children) of all property and assets, even if the will states: "I don't want my spouse to get anything," says Carlyn S. McCaffrey, an attorney with Weil, Gotshal & Manges, a New York law firm.
Disinheriting a child is fairly simple, although the laws vary from state to state. In some, such as Florida, just excluding a child's name from a will is sufficient. However, that move may be easily challenged on the grounds that you weren't of sound mind when you wrote the will and you forgot to mention little Johnny. The probate court may then rule in the child's favor and grant the portion of the estate required under law--usually one-half in the case of only one child (the spouse gets the other) and an equal portion of two-thirds if there are two or more kids (the spouse gets one-third).
In other states, omission isn't enough; the court will assume that it was an oversight--even without a legal hearing--and grant children what they're entitled to by law. To play it safe, some estate planners suggest that if you wish to disinherit Johnny, you should clearly state that in your will to acknowledge the omission is intentional. Some also advise giving him a nominal amount, say, one dollar, to establish that he wasn't forgotten. Explain why you're leaving your heir penniless--but not in a way that can be challenged.
To discourage challenges, attorneys recommend adding a no-contest clause. Basically, this is a double-or-nothing bet. (Using these is prohibited in Florida and Indiana.) Such clauses, says Zabel, are usually most effective as deterrents when the person contesting the will risks losing what was bequeathed. Take Dawn Roddenberry, the daughter of Star Trek creator Gene Roddenberry, who unsuccessfully challenged her father's will in court last July. Because of the no-contest clause, she lost the $500,000 and part of a trust fund he left to her. Some people might have forgone the fight and pocketed the $500,000.
MORE BLESSED. The simplest way to disinherit a spouse is to get him or her to waive their rights via a pre- or a postnuptial agreement (page 114). "It's better to decide what property belongs to whom when you feel amicably toward one another," says attorney John Zacker, in Locust Valley, N.Y. Of course, getting that agreement may be tough. Another option: Minimize the net value of your estate so there's little left for your spouse to get after you die. Consider "gifting," or giving away an asset entirely. "You can give anyone in the world up to $10,000 annually, tax free," says Zacker. Or purchase life insurance policies and designate someone other than your spouse as beneficiary. In many noncommunity property states, such as New York, life insurance is not included in the part of the estate to which the surviving spouse has access.
POOR PLANNING. Titles to real estate, bank accounts, and mutual funds can all be designated to whomever you wish. However, your spouse does have a right to the assets in your retirement plan unless waived.
You might also consider a testamentary trust into which you put some principal, say $1 million, and then will all the trust income to your spouse during his or her lifetime. But the trust's principal goes to someone else--a child or friend, perhaps--upon your spouse's death. The mechanics of such a trust vary from state to state, so consult your lawyer.
Spite and control aren't the only cause of disinheritance. Sometimes, says Henry S. Brock, author of Your Complete Guide to Money Happiness, disinheritance results from poor planning. Take his example of a couple, John and Sarah Wilton, who had two children, Tom and Paul. The Wiltons' will left 100% of their estate to the surviving spouse. John died, so Sarah received everything. She married a second time, to Bill, and, in turn, the couple agreed to leave 100% of their estate to the surviving spouse. Then Sarah died. So everything went to Bill, who could divvy up the assets however he wanted, and he wasn't particularly crazy about Tom and Paul. So Tom and Paul had to endure a long court battle--and still came up with nothing.
Disinheritance is a powerful final message to send from the grave. So plan carefully, because whether disinheritance is intentional or not, once done, it is tough to reconsider.By Lisa Sanders EDITED BY TODDI GUTNER