Mary Beth Caschetta and her father never saw eye to eye, but she didn't think he would cut her out of his will.
The 46-year-old writer left home when she was young, came out as a lesbian and had a stormy correspondence with her conservative father in the 1990s about his favoring her eldest brother. By the time he died in 2009, they had long since reconciled. So she was devastated to discover she had been disinherited and that her three brothers had gotten everything -- 330 acres of real estate near Rochester, New York, worth up to $1 million. Her eldest brother gained complete control of the estate.
Inheritance disputes are as old as the Bible -- see Jacob and Esau. But now a broad, deep wave of acrimony is hitting the U.S. as 76 million baby boomers, born after 1946, inherit estates or die. According to one study by MetLife, boomers stand to inherit upwards of $8.4 trillion.
“There’s far more estate and trust litigation than we’ve ever seen before,” says Robert Alexander, an estate lawyer and president-elect of the National Association of Estate Planners & Councils. “It’s a mushrooming industry. A good attorney will assume a will or trust will be contested. You do everything you can to cut off potential litigation in advance.”
Caschetta opted not to sue. She says the damage the disinheritance caused her family was painful enough. “This is the thing people who disinherit someone don’t understand: It puts a huge amount of pressure on those who aren’t being disinherited,” says Caschetta, whose experience inspired her to write a book on the subject that she's trying to get published. “Suddenly you have this rift and they have this choice. ‘Do I do what Dad wanted when he wrote this will and he was angry, even though many years have passed and we know they made up?’ Everybody’s put in this terrible position.” Her father wrote the will in 2000.
The one thing that can prevent rifts over family estates is what most families in which someone is disinherited lack -- good communication. “In most cases I find disinheritance occurs not because the parent hates the child but because the parent feels hurt,” says Martin Shenkman, a Paramus, N.J.-based estate lawyer and planner with 30 years of experience. Shenkman thinks estate planners too often just listen to their clients’ wishes without first engaging them and their families in meaningful conversation. Although Caschetta still has cordial relations with her mother, she is barely speaking with her brothers.
There are legal alternatives to disinheritance. A lot of them depend on the reasons for disinheriting someone. A common reason, Shenkman says, is simply that the parent feels that one child has a greater financial need than another. This was the reason stated in Henry Fonda's will for not leaving money to his daughter Jane and son Peter, while leaving $200,000 to his daughter Amy.
Since financial circumstances of successful heirs can change, this is not a good solution for parents who face this dilemma. A better one is to create a “sprinkle trust” for the estate, Shenkman says. In this case the trustee -- usually a financial institution, to avoid accusations of favoritism -- makes a periodic assessment of the heirs’ finances. It then adjusts the payments to them according to their needs.
Also commonly disinherited is the "problem child." The parent may still love this child, but is worried because he has a drug addiction or some other psychological difficulty. How do you prevent the inheritance from going up his nose or in her arm? Instead of disinheriting such children, you can create a trust that requires they enter a rehab facility and have periodic drug tests. If they’re not clean, they get no money.
Often benefactors want to disinherit so that their heirs remain eligible for government-paid medical care in nursing homes and mental health facilities. Again, this isn't necessary. For children or spouses with disabilities such as Down’s syndrome or Alzheimer’s, a special needs trust can ensure the heir still is eligible for Medicaid. The trust will pay for things Medicaid normally doesn’t cover -- private nurses, vacations from the facilities -- without causing the patient to lose needs-based benefits.
What if you really just don’t get along and want to cut off a qualified heir? It can be tricky to prevent challenges to your estate in probate court. A lot depends on how you’ve structured the estate, state laws and whether the heir you wish to disinherit is a child or a former spouse.
One cost-effective solution to prevent successful legal challenges, Shenkman says, is to file sequential wills, making slight changes to the second and third one to justify the filings while disinheriting the unwanted heir in all of them. This creates a track record that will show the court you consistently wanted to disinherit the heir. It also creates an “incredible legal impediment,” Shenkman says, because if the disinherited heir successfully overturns, say, the third will in court, he or she has to go back to court after doing that to overturn the second one and then the first one.
It’s easier to disinherit a child than a spouse or ex-spouse. There are nine community-property states, including California and Texas, in which all assets acquired and income generated during the life of a marriage are owned fifty-fifty. Anything not divided during the divorce such as a business or real estate will usually be divided after death in the same manner, even if you seek to disinherit your ex. Nor can child support that has already been awarded to a spouse be discontinued if you disinherit the spouse.
In common-law states, by contrast, pretty much everything is up for grabs during a divorce and in probate, but one third of assets is typically considered “equitable division” of an estate for a surviving spouse, Alexander says.
There are ways around divorce laws. One is to put assets into a self-settled trust with yourself as a beneficiary. A handful of states, including Alaska and Nevada, allow such trusts and let residents from other states create them. After your death, the self-settled trust reverts to a normal trust with normal beneficiaries -- but Alaska and Nevada’s laws so strongly favor the person establishing the estate that disinherited heirs have virtually no leg to stand on, Alexander says.
A problem with such trusts is that assets have to be put into them prior to a divorce to protect the estate. Although the time period varies by state, a trust typically needs to be created at least four years prior to a divorce to avoid it appearing that the person creating the trust is trying to hide or shield assets in preparation for a divorce, Alexander says. To create such a trust, you have to notify the spouse and get his or her permission in community-property states, though not in common-law states. Now there's an interesting dinner table conversation.
(Lewis Braham is a freelance writer based in Pittsburgh.)
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