23 Aug Have You Accidentally Disinherited a Loved One?
In prior months I have discussed estate planning for blended families and the unique challenges they face. This month, I want to discuss the problem of accidental disinheritance.
Before we discuss accidental inheritance, it is important to know that a blended family is one in which the spouses have children from previous relationships. For example, John has 2 children named Josh and Jackie from a previous marriage. John marries Sally who has 2 children from a previous marriage, Sam and Sandra. They are considered a blended family.
An accidental disinheritance is when a loved one is unintentionally left out and does not inherit from a parent.
Let’s see how things will pan out in two different scenarios for this family.
Scenario #1: No Planning Done
John and Sally have not done any estate planning. They own a home together as joint tenants, John and Sally own a business and they each have a retirement account. John’s son, Josh, works and is an important part of the family business. John dies in 2014 and his estate must be probated because he did not have an estate plan in place. She ends up inheriting all of the community property assets. The children do not receive any portion of John’s estate. Sally dies in 2016, with no plan. Her children, Sam and Sandra probate their mother’s estate and through the laws of intestacy Sam and Sandra end up inheriting all of the assets, including John’s business. Josh and Jackie are mad. They get nothing according to the probate code. They have been accidentally disinherited with no recourse.
Scenario #2: Inadequate Basic Planning
John and Sally create a basic estate plan. Their plan leaves everything to each other. At the survivor’s death, everything is divided equally among all 4 children.
But, after John’s death, Sally gets into an argument with her step-children, Josh and Jackie, and amends her estate plan. She changes the plan and disinherits Josh and Jackie. She dies and her children receive everything.
In both of these scenarios, the step-children of John are left high and dry with no inheritance. In the first scenario, it was unintentional because there was no plan in place and the laws of California dictated what happened. In the second scenario, the estate plan was not adequate to protect John’s children from a previous relationship.
Through thoughtful estate planning, the problem faced by Josh and Jackie could have been eliminated. John had several options which he could have taken advantage of to make sure that his wife has sufficient assets to live on after his death and his children ultimately receive their inheritance after his wife’s death.
- Prenuptial or Postnuptial Agreement. John and Sally could have signed a prenuptial agreement before the married, or a postnuptial agreement after they married, establishing what is John’s and Sally’s and what is both of theirs.
- Gifts at First Death. Specific provisions could be made that allow the children to inherit immediately after the death of their parent instead of waiting until their step mother or step father passed away.
- Trust. An estate plan with a trust designed for blended families could have restricted certain changes after the death of the first spouse thereby ensuring that the children receive their inheritance. For example, Sally could have been taken care of in the trust without the having the ability to redirect everything to her children and remove Josh and Jackie.
As always, with complex family structures comes a higher chance of family disputes and litigation which can be easily avoided through proper planning. Contact our office for a free consultation, (818) 649-9110.