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How Can You Disinherit Someone and Be Sure it Sticks?

Let’s say you want to leave everything you own to your children, but you can’t stand and don’t trust their spouses. That might make you want to delay making an estate plan, because it’s a hard thing to come to terms with, says a recent article “Dealing with disinheritance, spouses” from the Times Herald-Record. There are options, but make the right choice, or your estate could face challenges.

Some people choose to leave nothing at all for their child in the will, so that if there is a divorce or if the child dies, their assets won’t end up in the daughter or son-in-law’s pocket. For some parents, particularly those who are estranged from their children, this can create more problems than it solves.

Disinheriting a child with a will is not always a good idea. If you die with assets in your name only, they go through the court proceeding called probate, when the will is used to guide asset distribution. The law requires that all children, even disinherited ones, are notified that you have died, and that probate is going to occur. The disinherited child can object to the provisions in the will, which can lead to a will contest. Most families engaged in litigation over a will become estranged—even those that weren’t beforehand. The cost of litigation will also take a bite out of the value of your estate.

A common tactic is to leave a small amount of money to the disinherited child in the will and add a no-contest clause in the will. The no-contest clause expressly states that anyone who contests the will loses any right to their inheritance. Here is the problem: the disgruntled child may still object, despite the no contest clause, and invalidate the will by claiming undue influence or incapacity or that the will was not executed properly. If their claims are valid, then they’ll have great satisfaction of undoing your planning.

How can you disinherit a child, and be sure that your plan is going to stand up to challenge?

A trust is better in this case than a will. Not only do trusts avoid probate, but (unless state law requires otherwise at death) the children do not receive notice of the creation of a trust. An inheritance trust, where you leave money to your child, names a trustee to be in charge of the trust and the child is the only beneficiary of the trust. The child might be a co-trustee, but they do not have complete control over the trust. The spouse has no control over the inheritance, and you can also name what happens to the assets in the trust, if the child dies.

This kind of planning is called “controlling from the grave,” but it’s better than not knowing if your child will be able to protect their inheritance from a divorce or from creditors.

With a national divorce rate around fifty percent, it’s hard to tell if the in-law you welcome with an open heart, will one day become a predatory enemy in the future, even after you are gone. The use of trusts can ensure that assets remain in the bloodline and protect your hard work from divorces, lawsuits, creditors and other unexpected events.

Reference: Times Herald-Record (June 6, 2020) “Dealing with disinheritance, spouses”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Why You Need an Estate Plan, Especially Now

Estate planning is an all-encompassing term that refers to the entire process of gathering and organizing assets and making preparations for when you die, including caring for minor children and heirs. It also includes putting protections into place, if you should become incapacitated, says an article that covers estate planning basics from c|net titled “Estate planning 101: Your guide to wills, trusts and all your end-of-life documents.” Your estate plan involves writing a will, power of attorney and funeral arrangements. Here are some of the key steps:

Distributing assets. Your estate includes more than just real estate. It includes everything you own, including your car, jewelry, sentimental belongings and intangible assets, like investments and insurance. If you own a business, that is also part of your estate.

Preparing for family life without you. An estate plan sets out how you want to care for loved ones. A will is used to name a guardian for minor children, and to name someone to be in charge of their finances. One person can have both roles, but it is generally advised to name one person for each role. If you fail to name a guardian, the court will select one for your children.

Assign the tasks of handling the estate or your health, if you are incapacitated. An estate plan includes a medical power of attorney and a financial power of attorney, so decisions can be made on your behalf, if you are incapacitated. You’ll also name an executor. This is the person who will be in charge of following the directions you leave in your will and distributing assets. Depending on your estate, the person may also be in charge of selling your home, negotiating with creditors, or managing the sale of your business. It’s a big assignment and requires someone who is organized and trustworthy.

Work with an estate planning attorney. An estate planning lawyer will save you a lot of time, energy and effort in creating an estate plan. The attorney will also be able to help you manage estate, inheritance and gift taxes to minimize the impact of federal and state laws on your beneficiaries.

Document everything properly. Just stating your wishes won’t solve anything. You need an estate plan with all of the right documents, prepared in accordance with the laws of your state. An invalid will could create just as many problems as no will at all. You’ll need a last will and testament to appoint an executor, outline how you want assets to be distributed and see your will through the probate process.

If you want to avoid probate court, you may want your estate plan to include a trust. A “funded” revocable trust can be adjusted while you are living. When you die, the trust is managed by trustees of your trust.

A living will details your healthcare preferences, in case you are not able to communicate or make decisions on your own. If you require life support, or life saving measures, the living will specifically outlines what you want to have done—or not done—rather than having children or relatives guess at your wishes.

Having an estate plan is not a set-it-and-forget-it plan. As you proceed through life, getting married, having children, divorcing, buying property, etc., the estate planning documents need to be revised, so they continue to reflect your wishes. Whenever there are big changes to the law, you may also need to revise the will, so you don’t miss out on any planning opportunities.

Reference: c|net (June 8, 2020) “Estate planning 101: Your guide to wills, trusts and all your end-of-life documents”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

How Does a Constructive Trust Work?

Trusts are useful in estate planning to avoid probate or minimize estate taxes. A commonly used trust is a revocable trust, often used to pass on assets to beneficiaries and keep them outside of the taxable estate. A constructive trust is a trust used to correct situations where property belonging to one person is held unfairly by someone else, explains the article “What is a Constructive Trust?” from Yahoo! Finance.

A constructive trust isn’t a traditional trust. A revocable living trust requires certain steps, like drawing up a trust document, naming a trustee, selecting beneficiaries, and transferring property or assets into the trust, referred to as “funding the trust.” This is used to manage assets for your own lifetime and potentially for generations to come.

A constructive trust is established by the court, when two parties are involved in a civil dispute over property. It might be created when someone is unfairly given ownership over property, which could happen because of deliberate misconduct or a mistake in a property transfer.

Here’s an example. Let’s say a person sets up a living trust and a trustee commits a breach of fiduciary duty that allows them to take control of trust assets. The estate planning attorney for the person who had the trust created would go to court to have a constructive trust created. This is known as an “equitable remedy.”

The first requirement for a constructive trust is that there is a court action between a property owner and another person, who is wrongly benefiting from the property. Another example: an elderly person’s caretaker coerces her into signing over the title for a piece of real estate. The mother’s legal guardian would bring a lawsuit against the caregiver on behalf of the mother. If the court agrees that the caretaker abused their position to gain ownership of the property, a constructive trust would be created. The property would be placed in the trust, out of the ownership of the caregiver, while the ownership is being transferred to the mother.

The constructive trust is meant to be a short-term arrangement to provide temporary relief. The person who is benefitting wrongfully from the property is directed by the court to transfer it to the trust. If the property itself cannot be returned, they are required to pay money to the trust of the equivalent value.

Here are examples of situations when a constructive trust could be used to transfer property:

• Undue influence,
• Duress or coercion,
• Mistake,
• Breach of fiduciary duty,
• Embezzlement, or
• Commission of a crime, including theft or homicide.

The constructive trust is also used if there is a dispute over how property should be distributed after a person dies. Let’s say the oldest sibling of a family convinces his parents not to write a will, assuring them that he will make sure that assets are distributed fairly to the younger siblings. He then keeps everything or sells assets and does not distribute proceeds. If the other siblings take him to court, the court may establish a constructive trust to provide relief and ensure that the estate is distributed according to the state’s inheritance laws.

Reference: Yahoo! Finance (June 5, 2020) “What is a Constructive Trust?”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899