Posts Tagged ‘disinheritance’

What To Do About a Child Who Can’t Handle Money

SEPTEMBER 1, 2014 VOLUME 21 NUMBER 31

A reader asks: “could you do an article on how to leave inheritance to a son who is not good at handling money? Should I leave his portion to another son who is good at it? They are very close and would get along.”

First we have a disclaimer, then the answer, then an explanation.

The Disclaimer

We don’t know our reader’s life situation, or her son(s), well enough to give her actual legal advice. The answer we offer will be based on generalities, and might not apply to her very well. This is why one hires a lawyer — to get actual advice based on one’s real circumstances (oh, and for drafting of the documents — but that’s usually less important than the advice).

We do have some observations and suggestions to consider, but they are based on situations that we have seen before and our knowledge of law and human nature. They are offered not as an answer, but as an exploration of some of the alternatives our reader — and you, if you are in a similar situation — should think about.

The Answer

What you probably need, dear reader, is a trust for the benefit of your son who is not very good at handling money. Whether your son who is good at handling money will serve as trustee or not should be a question that you discuss with your attorney. But if you meant to ask whether you should just disinherit your son who is not good with money and give a double portion to your other son (expecting him to take care of his brother) — the answer to that question is a clear and firm “no!”

Some Definitions

(Special bonus section. It will help the explanation flow more smoothly.)

An arrangement where one person handles money for the benefit of another is called a trust. A trust can be formal, with lots of legalistic provisions and directions to the trustee, or very simple. You can simply hand a check to one person, saying “here, take care of this for your brother” and create a trust. But don’t — that’s a sure way to destroy familial relationships and transfer family wealth to lawyers. It is important to have an actual trust document.

A trust can be created in your will (in which case it is called a testamentary trust) or while you are still alive (in which case it is usually called a living trust, though some lawyers prefer the term inter vivos trust). The person who is entitled to receive benefits from the trust, whether right now or upon the death of the current recipient, is called a beneficiary.

A trust that prohibits the beneficiary from transferring his or her interest in the trust’s assets to another person is called a spendthrift trust. That doesn’t necessarily mean that the beneficiary is a spendthrift, though he or she may be.

The person who handles money for another is a trustee, and a trustee is a fiduciary. A fiduciary has an obligation to report the finances of the trust to the beneficiary (beneficiaries, actually — the people who receive benefits on the death of the current beneficiary may also be entitled to reports. But that’s a topic for another day).

If you create a testamentary trust (in your will, remember?), you have pretty much assured that your estate will need to go through the probate process in order to fund the trust. That’s not necessarily a bad thing, but it often comes as a surprise to clients. Avoiding probate while establishing a trust usually means a more expensive estate plan.

The Explanation

The question is deceptively simple, and the answers have a number of repercussions to consider. Can you simply disinherit a child who is not good with money? Yes, you can (at least in Arizona, and assuming the child is not a dependent or minor child). That might lead to hard feelings, and even litigation, but assuming you are competent and your wishes are clearly stated, the disinheritance should be effective.

At the same time, you can leave a disproportionate share of your estate to someone else. You can even tell them you expect them to take care of a sibling (or a grandchild, or a spouse, or anyone else you are disinheriting). But you can’t expect them to actually carry through. They may be saintly and responsible, but they are not immortal. Your son will probably leave his estate to his wife or children — and they might or might not carry through on his obligations. Or your son might have business reverses, or be sued by someone he injures accidentally, or … you can begin to see the variety of problems that could arise.

There’s a practical problem in addition to the legal/financial one. Your two sons get along well? We can tell you that cutting one out and telling the other to take care of his brother will end that positive relationship. The disinherited child will feel like he has to beg for something he is entitled to. The favored child will feel like he has been thrust into a parental relationship with his brother. Each will resent the other.

By creating a trust, you reduce that problem — but you do not eliminate it. The trustee son can now point to the document to explain his decision (“see? Mom said I was not to just turn the money over to you to buy as many cars as you thought you needed”), but there will still be a fundamental change in their relationship. You might want to consider making someone else trustee.

But who? The brother who already doesn’t get along with the beneficiary? (Don’t dismiss this idea so quickly — the question is asked half-humorously, but half-seriously.) The bank? Another family member (the cousin who is a bank officer, perhaps)? A professional (your accountant, your lawyer, your broker)? A professional fiduciary (they are set up in many, but not all, states)? Each of those choices has positives and negatives, and they are the topic for some future discussion here — and a more immediate one with the lawyer you hire to draft your trust.

Best of luck. It’s not easy to deal with your children’s different needs, abilities and expectations.

Guardianship May Suggest Lack of Testamentary Capacity

MARCH 19, 2012 VOLUME 19 NUMBER 11
Can a person under guardianship sign a new will? After all, in order to have a guardian appointed (in Arizona, at least), the court must first have found that the person is impaired by a mental disorder (or some other cause) and that he or she “lacks sufficient understanding or capacity to make or communicate responsible decisions concerning his person.”

This is a question we have addressed before, in discussing a 1996 Mississippi case. It comes up from time to time and in different circumstances. The Mississippi case described earlier, for instance, involved a conservatorship rather than a guardianship proceeding, though the principles are the same in either circumstance. The bottom line, as described in our earlier article, is that a person may be able to sign a new will in Arizona — even if they have been determined to be incapacitated, or in need of (financial) protection.

A recent Arizona Court of Appeals decision revisited the question, with a slight twist. John Bartlett (not his real name) had been the subject of both a guardianship and a conservatorship order since 2004. On May 28, 2008, the probate court held a hearing on his request to terminate his guardianship. He maintained that he no longer needed a guardian, but the probate judge decided that he continued to be incapacitated — that is, that he was still unable to make responsible decisions regarding his own care.

That very same day John signed a new will. In it, he disinherited his daughter (his only child) and left his entire estate to his grandson. The document also revoked an earlier will, signed before the guardianship proceedings were begun, which had named his daughter as his personal representative and left his entire estate to her.

When John died a few months after signing his new will, a probate court dispute ensued regarding which document was valid. Did John have the capacity to revoke his old will, and to disinherit his daughter? Both wills were submitted for consideration, and the probate court found the new will to be valid and admitted it to probate.

When the personal representative of the estate filed a final report with the court, John’s daughter objected that her challenge to the new will (and to a trust signed the same day) had not been resolved. The estate’s personal representative disagreed, and filed motions to strike the daughter’s pleadings, enter summary judgment in favor of the later will, and close the estate. In a series of hearings, the probate court granted all of those requests.

The Arizona Court of Appeals disagreed. Although John’s daughter had not put on any evidence — indeed, she had not even filed any pleadings expressly objecting to the summary judgment request — the probate court should have been on notice that there was substantial evidence of John’s incapacity. The fact of a guardianship proceeding was enough to raise doubts about his ability to sign a new will, and summary judgment — entered without taking any evidence — was improper, according to the appellate judges.

The Court of Appeals takes pains to make clear that it is not holding that John’s will is invalid, or that people under guardianship can not sign new wills. In fact, the mere existence of a guardianship does not (in Arizona, at least) even create a presumption of incapacity to sign a will. But the existence of the guardianship proceeding, and especially the guardianship finding on the very day John signed his new will, should have alerted the probate court that there was some evidence in support of a challenge to that will. Estate of Blackford, March 13, 2012.

Son Disinherited Because of Felony Despite Expungement

FEBRUARY 17, 2003 VOLUME 10, NUMBER 33

When William Garland, Jr., wrote his will, he was concerned about his son Richard Garland. Because he thought Richard had engaged in some irresponsible behavior in his teens, Mr. Garland directed that Richard’s share of his estate would be held in trust. The terms of the trust directed that all income would be distributed to Richard, but that he would get none of the principal until he turned thirty.

In fact, Mr. Garland was concerned enough that he included another, unusual, provision: if Richard Garland was convicted of a felony before he turned thirty, according to Mr. Garland’s trust, Richard Garland’s share would pass to Mr. Garland’s two daughters. In other words, Richard Garland had it within his power to disinherit himself.

Sure enough, Richard Garland got in trouble again before he turned thirty. In 1993 he pled guilty to a drug charge, was put on probation for five years and ordered to pay a $1,000 fine. That may have been the shock he needed, however, as he did not get in trouble again for the next decade.

In the year 2000 Richard Garland took advantage of the state law allowing convicted felons in some cases to set aside their criminal records. He convinced a judge that he had been rehabilitated, and his record was expunged. As part of that process the judge even ordered that his prior criminal conviction should be sealed.

Richard Garland then sought to have the remaining trust principal distributed to him as if he had not been convicted of a felony. His sister objected, arguing that the fact that his conviction had been set aside did not mean it had not happened, and Richard Garland had no right to receive anything further from the trust.

The trial court judge agreed with Richard, ruling that the expunging of his record meant that the conviction never happened in the first place. Richard’s sister appealed the court’s order.

The Arkansas Supreme Court reversed the trial court’s determination and ordered the trust distributed between Richard’s sisters. According to the Supreme Court’s analysis, the minute Richard entered his guilty plea and was sentenced, he had been convicted of a felony. The fact that he had successfully moved to set aside the conviction did not mean that it had not happened, only that the record was wiped clean. Put another way—when Richard Garland pled guilty, the trust property became his sisters’ because the trust’s terms directed that result. Later developments could not revive his interest in the trust. Summers v. Garland, February 13, 2003.

Only Preponderance Of Evidence Required To Disinherit Killer

SEPTEMBER 25, 2000 VOLUME 8, NUMBER 13

David Pickett died in Portsmouth, New Hampshire, in February, 1993. The cause of his death, as the New Hampshire Supreme Court later described it, was “the infliction of an incision wound to his neck by one or more unknown persons.” No one has been prosecuted for his murder, but the police did have a suspect—his brother Robert.

During his life David Pickett never got around to signing a will. In the language of the law, he died “intestate.” Under New Hampshire law (as under the law of most states), that means his estate would pass first to his spouse, then to his children and grandchildren, then to his parents and their issue. David Pickett was not married and he had no children; his parents were both already dead. That meant that his estate would be distributed half to his sister Mary P. Hopwood and half to his brother Robert Pickett.

Mary Hopwood filed an action in the New Hampshire courts asking that Robert Pickett be precluded from receiving his share of the inheritance. She claimed that he had killed his brother, and she pointed to a long-standing provision of the law that prevents a killer from profiting from his wrongful act. He should be treated as having died before the brother he killed, she argued, and that would mean that she would receive the entire estate.

If Robert Pickett had been charged with murder, of course, the prosecutor would have to prove beyond a reasonable doubt that he had killed his brother. Mary Hopwood would not have that heavy of a burden of proof, but the lawyers in the case disagreed about what standard did apply to her claim. Would she only have to show that it was more likely than not that brother Robert killed David, or would she have to prove that assertion by the more rigorous standard of “clear and convincing evidence?”

The trial judge held her to the higher standard, and ruled that she had not met her burden of proof. She appealed to the Supreme Court, which determined that she should have only been required to show that Robert Pickett was more likely the killer than not; the case was remanded to give her another chance.

At the first trial, Ms. Hopwood tried to introduce evidence from the pending criminal investigation, including a recording of conversations between her daughter and Robert Pickett. The trial judge had precluded all evidence from the criminal investigation to protect ongoing police efforts. The appellate justices directed that the transcript be admitted. The key question addressed in those transcripts: did Robert Pickett mail a letter to “the Estate of David Pickett” on the morning before (or, as he insisted, immediately after) he was informed by police of his brother’s death? Hopwood v. Pickett, August 23, 2000.

Like New Hampshire, Arizona provides for the automatic disinheritance of a killer. Conviction in a murder trial is one way to accomplish that result, but even if the alleged killer is not convicted (or not even charged) other heirs can file a request for the disinheritance. Arizona’s statute makes it crystal clear that only the lower standard of proof–preponderance of the evidence–is required, just as the New Hampshire Supreme Court ultimately ruled.

An interesting sidelight to the Hopwood v. Pickett case: while the appeal was pending, the New Hampshire Supreme Court was rocked by (unrelated) allegations of misbehavior and malfeasance. After briefs had been submitted and oral argument concluded, one Justice resigned under a cloud, another decided to accept retirement and a third (the Chief Justice) removed himself from consideration of the Pickett case, apparently to focus his attention on an impeachment trial in the State Senate. Since that left only two Justices to decide the issue, the Court asked two newly appointed Justices to fill the gap, even though they had not heard the oral argument of lawyers. With the consent of lawyers from both sides, those four jurists unanimously decided the Pickett case. Apparently the New Hampshire judicial system works reasonably efficiently even in times of crisis.

Will Omission Does Not Entitle Estranged Son to Inheritance

JULY 24, 2000 VOLUME 8, NUMBER 4

The general public is frequently misinformed about wills and estate planning. One pervasive notion is that a will must leave some token amount to every child (or other relative) in order to disinherit that individual. While the most frequent formula is to leave $1.00 to each individual, one will took a different approach: in order to disinherit his wife and eight children, one Tucson man left the dining room table to the wife and one chair to each child.

Disinheritance need not be so complicated, at least in most cases. In some circumstances (and this varies by state in the U.S.), it may be impossible to completely disinherit spouses and/or children, but leaving one dollar to each will not improve the prospects of success.

That practice grew out of challenges to wills on the basis that the signer simply forgot he or she had a spouse or children. By leaving a token amount to a disfavored child, the signer of a will demonstrates that the omission is intentional, not accidental. The same result can be obtained more directly, by language describing the disinheritance. “I have a son Jeremy, to whom I leave nothing” is every bit as effective as “I leave the sum of $1.00 to my ne’er-do-well son, Jeremy.”

Incredible as it may seem, sometimes people really forget that they have children. Some states’ laws provide default rules, by which a child who has not been mentioned may be entitled to receive some share of the decedent’s estate. In Montana, for example, the law provides that a child will receive a share of the estate even though not mentioned, if it can be shown that the parent mistakenly believed that the child had died.

That was the section relied on by William Prescott Putman when his mother, Gertrude E. Prescott, died. Mr. Putman had been raised by his father after his parents’ marriage was annulled in 1954, and he had no direct contact with his mother after he was three. In a 1985 will she left her entire estate to Montana State University and the Museum of the Rockies; in a draft prepared six years later (but never signed), she directed inclusion of a paragraph reciting that “the line of succession for this branch of the Prescott family ends with me.”

Mr. Putman challenged the will, claiming that he was entitled to a share of his mother’s estate. He claimed that she must have believed that he was deceased. Otherwise, he argued, she must have been incompetent to sign a will.

Mr. Putman could not produce any affirmative evidence that his mother thought he had died. The only indication along those lines was the mention in the unsigned will that “the Prescott family ends with me.” In fact her lawyer’s file included a note indicating that she had told him about the existence of her son some time after the will was signed.

On the subject of her alleged incompetence, Mr. Putman pointed to several factors. His mother had been determined to be 30% disabled by the Veteran’s Administration in 1945, due to an anxiety disorder. She had been diagnosed as mentally ill several times during her life. She had gotten a college degree (in Agriculture) at Montana State College in 1953, but she lived alone in a small cabin near White Sulphur Springs, Montana, without running water or electricity for years. She had suffered a stroke four years before she signed her will, and was under a conservatorship at the time of signing.

On the other hand, Ms. Prescott’s attorney testified that she knew what she was doing when she signed the will, that she was consistent in her intentions over a two-decade period, and that she wanted her property to go to the Montana State University and the Museum of the Rockies. Even her conservator testified that she understood her financial affairs at the time the will was signed. One doctor testified on behalf of Mr. Putman, saying that the records seemed to indicate to him that her competence was questionable. Even that expert witness, however, acknowledged that her understanding of her finances and her family “ebbed and flowed” during the time the will was signed.

Both the Gallatin County probate court and the Montana Supreme Court determined that Ms. Prescott was competent, and that the omission of her son was intentional. He was not entitled to receive any portion of her estate by law, and her bequest to the two charities was upheld. But Ms. Prescott could have probably have saved her estate the cost of legal proceedings if she had simply written “I have a son William, to whom I leave nothing.” Estate of Prescott, July 20, 2000.

Bequests To Disabled Children Should Be In Special Trusts

MARCH 20, 2000 VOLUME 7, NUMBER 38

Suppose your adult son is disabled and receiving both financial and medical assistance from the government. While you do not consider yourself wealthy, you have worked hard all your life and managed to build a modest estate. If you leave your disabled child his share of your estate he will lose his government benefits, and the money you saved for him will soon be consumed in paying his medical bills and care costs. Is there any way to help your son without disrupting his benefits?

Parents of disabled children face difficult choices when they complete their own estate plans. On one hand it might seem reasonable to simply disinherit the disabled child and rely on the public benefits system to provide for their future needs; the parent’s estate may have a larger beneficial effect if it is distributed to the non-disabled children instead. Parents may also choose to rely on those non-disabled children to help provide for their disabled siblings with some of the money they inherit. Depending on individual family dynamics, disinheritance of the disabled child may seem like the most logical choice.

Most commonly, though, parents of disabled children want to treat all of their children equally—or at least come as close to equal treatment as is possible. In most cases, however, any share of the parent’s estate which will be attributed to the disabled child should be held in a trust that provides only for “luxuries” for that child. Such a trust is sometimes called a “Special Needs” trust, and is established to provide assistance but not interfere with eligibility for continued public benefits like Supplemental Security Income (SSI) and Medicaid (or, in Arizona, AHCCCS or ALTCS).

Though recent changes in federal and state law have made the rules more difficult for some Special Needs trusts, those rules do not affect trusts set up for inheritance purposes. A properly drafted Special Needs trust is allowed to provide additional therapy, entertainment, education, travel, assistance with medical care, companionship and a host of other benefits to make life more comfortable for the disabled child without disrupting SSI or Medicaid eligibility. But such trusts are not automatic—if you fail to plan in advance, your child’s share may result in a loss of SSI income, medical care and even eligibility for group home placement and other assistance.

It is important to get good legal advice before establishing a Special Needs trust. For example: if benefits come solely from Social Security Disability Insurance (SSDI) and the federal Medicare program, a different trust arrangement may be more appropriate. Your attorney needs to be familiar with government programs, and must have complete information before making a recommendation.

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