The Truth About Disinheritance

When a grandchild becomes a black sheep, it may be time to tweak your will

By Bambi Holzer

Disinheritance. It’s a dirty word, but one that I hear on occasion from my clients. Fed up with the huge sense of financial entitlement their children and grandchildren seem to feel, grandparents start to talk about cutting them off.

Most often, that means putting an end to the financial assistance they are currently giving. Less frequently, grandparents make plans to actually disinherit a child or grandchild from their will or living trust.

The Urge to Disinherit

Inheritances — and disinheritances — are issues that are emotional as well as financial. According to a 2007 survey of high-net-worth Americans by PNC Wealth Management, a member of the PNC Financial Services Group, 40 percent of total survey respondents said they consider the emotional connection they have with an heir to be one of the most important factors in determining how much money to leave an heir — more than that heir’s fiscal responsibility or financial need. So it certainly makes sense that if you feel your emotional bond with a potential heir is damaged, you might be tempted to tighten your purse strings.

The Consequences

But disinheriting a loved one has consequences for everyone involved (not just the disinherited), and is not a decision to be made lightly. For one thing, it will cause pain — and perhaps legal problems, in the form of a contested will — for your loved ones. The action may also have unintended financial repercussions: Cutting off educational support to a grandchild, for example, could put an unwelcome financial strain on your child if she was counting on your contribution.

The threat of disinheritance is also often used as a tool of manipulation. But really, do you want a family member to love you (or visit you, or care for you in your old age) simply because they want a payday?

If you’re not feeling the love — or if you’re dealing with a “rotten egg” — consider making financial decisions that are less permanent. Bert Padell, financial advisor to Hollywood's rich and famous, recommends that concerned grandparents allocate the wealth through a trust rather than altogether disinherit their children or grandchildren. Furthermore, adds the grandfather of six, if grandparents leave their estate to the grandchildren, skipping over the children, than the estate tax is substantially decreased.

Inheritance With Strings & Trusts

While Jonathan Forster, an estate-planning attorney and partner at Los Angeles-based Weinstock, Manion, Reisman, Shore & Neumann, isn’t normally a fan of attaching strings to an inheritance, he admits that they can be helpful when you have a child or grandchild with a gambling, drug, or alcohol problem that you don’t want your money to support. Forster is dealing with such a scenario right now; his solution for his client was to set up a trust for the heir and give the trustee the power to do regular drug tests. “If the tests come back positive, the family can withhold distribution of funds,” he says.

When there are two grandparents, you can also give the surviving spouse what’s called “special power of appointment” over the estate to re-include an excluded grandchild if he or she shapes up. “Give the kid a chance to rehabilitate himself or herself before cutting anyone off entirely,” says Forster.

If you’re still set on cutting an heir out of your will, keep these tips in mind:

Update Your Will or Trust

Make sure your intentions are clear, says Forster. Don’t just leave the heir out of your will. State that you are disinheriting her.

Change Your Beneficiaries

If you’ve set up a 529 plan for a grandchild that you decide to disinherit, you can change the beneficiary of that plan at any time. You should also update your life insurance and retirement account beneficiaries if they name the person you wish to disinherit.

Keep Gifting... to Someone Else

If you’re committed to gifting for estate-planning purposes, make sure that you don’t miss out on that benefit simply because you’re disinheriting someone. Gift that amount to another family member, a friend, or a charity. Says Forster: “You can [give a $12,000 annual exclusion] gift to anyone.”

Comments

At least giving to another person sounds good, but I'd say disinheriting a grandchild is a severe thing to do... and should really be considered carefully. That adult grandchild will have to live with that rejection for the rest of their life. But this is so, so rare I think... In fact the opposite I find is true -- that most older people look forward to giving their grandchildren an inheritance, just for the pleasure of it. Disinheriting is very rare. In fact I see many older middle class Americans actually giving grandchildren money now, in advance of dying and having an estate do it for them. That more common than disinheriting grandchildren, in my view.

Many older middle class people, which is most Americans, don’t skimp and save these days to assemble significant inheritance assets for heirs – mainly because being middle class people, they are forced to spend what they make and often what they have saved.... just to live and survive comfortably. Maybe to get some money to heirs before that happens, many older middle class Americans are frequently handing out cash to grandchildren in this lifetime, to help them pay bills, stop a foreclosure, pay for medical issues not covered by lousy health insurance plans, or whatever. Plus, let’s not forget weaker returns these days on investments, dramatically increased living expenses, less retirement benefits than ever before, and falling property values in most areas. So maybe the thought is to be generous now, today, while some money is still there to give.

In fact, looking at all this from the other side -- from the grandchildren's point of view, inheriting... things are so tight for most middle class families these days that many family members waiting for their inheritance, waiting for probate to end, frequently get loans while waiting for inheritance – borrowing against their inheritance -- in the form of large probate loans, inheritance advances or inheritance advance loans, regular probate inheritance loans, or probate real estate loans, as soon as they can complete an inheritance advance or probate loan application from online probate loan or probate advance companies that provide loans on inheritance, inheritance loan advances, very large probate cash advances, small inheritance loans in advance, advance inheritance to both Canadians and Americans, loans while waiting for inheritance (in trust), all sorts of loans based on inheritance, loans against an inheritance and inheritance loan advance assignments… from inheritance loan companies (companies that lend on inheritance exclusively) -- like well known probate loan companies such as www.heiradvance.com, or www.inheritanceadvance.com or perhaps www.inheritancenow.com, well known probate loans providers that have been around for decades. Pushing like that to get probate cash early like that really shows how tough it is, in my opinion, for most middle class grandchildren, working people, office workers, these days... who also happen to be heirs or beneficiaries that are expecting inheritance money. I think most grandparents recognize this, and most would be loath to cut a grandchild out of a will.... knowing how rough it is out there for younger people trying to build a life. It would be a really extreme situation to motivate a disinheritance among middle class people. Now for the wealthy, the 1%ers...where money, wealth, becomes an emotional tool... especially inherited wealth to be... now that might be a different story altogether, although still extreme. But less so than with middle class people. There is a lot more to gain, and a lot more to lose. And a lot more to use in those emotional wealth games that those families play with each other... even grandparents and grandchildren. I oughta know... having come from that type of family.

geo2017 on 2017-12-20 19:16:45

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