When a Will Divides an Estate, and Also Divides a Family

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When a Will Divides an Estate, and Also Divides a Family
Wealth Matters
By PAUL SULLIVAN JUNE 20, 2014

KATE'S father died when she was in college, but she stayed close to his side
of the family. Although she moved to North Carolina after graduation, she
and her three siblings returned to New Jersey a couple of times a year to
visit her grandmother, aunts and cousins. She called her grandmother
frequently until dementia made it impossible for them to communicate.

So when Kate, who asked that her full name not be used to protect her family's
privacy, learned from a lawyer that her grandmother's estate had been split
among her aunts with nothing left to her or her siblings, she thought there
had been a mistake. Puzzled, she called the aunt who was the executor of the
estate and with whom she had spent vacations as a girl.

"Her response was that my grandmother had wanted to take care of her
daughters who had taken care of her for all those years," said Kate, who is
33 and has two children and another on the way. "She wanted to make it clear
to me that they did a cognitive test on her before she signed the will."

Unpersuaded, she requested a copy of the will. It turns out her grandmother,
who was suffering from severe Alzheimer's, had signed a will in September
2012 that reaffirmed a 2007 will that split her assets among her five
children, with her son's share going to his children. Five days later - and
a week before she died - the grandmother signed another will that
disinherited her son's children.

"This didn't seem right," Kate said. "This is our birthright. We didn't have
our father here to defend us."

That was when she began a painful, prolonged legal battle against her
family, which resulted in a financial settlement a few weeks ago. But that
money came with financial, emotional and family costs.

What Kate's case shows is both how easy and complicated it is to execute a
deathbed disinheritance. John O. McManus, a lawyer in New York who
represented Kate and her siblings, said that like many cases contesting
wills, this one was not clear-cut. "Should the grandkids get their dad's
share? Absolutely," he said. "Were the grandkids without fault? No, they
didn't visit Grandma enough."

And it raised common competing issues in these cases: Grandma may have had
diminished capacity or been swayed by her daughters, he said. "But judges
work very hard to protect individual rights to dispose of their property as
they wish."

The bar to overturn a will is high. "The capacity needed to make a will is
very low, lower than to enter into a legal contract," said Adam von Poblitz,
head of estate planning for Citi Private Bank. "You could have someone who
had dementia, but if they had moments of lucidity they could execute a fully
valid will."

For Kate, it wasn't only about the money but about how her aunts treated
her. "They started calling us greedy from the beginning," she said.

Disinheriting family members is an extreme step and one that is not even
allowed in many countries. John Davis, faculty chairman of the families in
business program at Harvard Business School, has studied inheritance laws
around the world and found that in most places people have limited
discretion over leaving money to heirs.

"Whether it's sharia in Muslim countries or the Napoleonic Code throughout
Europe and parts of Latin America, what you give to your heirs is tightly
prescribed," Mr. Davis said. "Anglo-Saxon countries are the exception to
this rule."

In reality, Mr. Davis said, unequal inheritance is rare even in the United
States, though he often advocates for it to be used more, particularly when
a family business is involved.

"People say to me, 'How can I treat my son differently than my daughter?' "
Mr. Davis said. "Well, he's different. Your daughter is really responsible.
You son is a derelict who gets into fights with the family all of the time."

Alas, few people listen to him, he said, often to the detriment of a family
business.

So when do people leave money unequally and still keep the family together?

Cases in which a child has special needs or a disability and will require
financial help for a lifetime is one example. Another common one is when a
child struggles with addiction. Money for that child can be put in trust to
limit access to it.

Unequal inheritance can also be justified when one child earns more than the
other or if a child received a lot of financial gifts while the parents were
still alive. While it may be easy to true up the other children for gifts
made to one, leaving money unequally to someone based on career choices can
be tougher.

"You've got the hedge fund manager and the preschool teacher whose lives are
going to play out differently," said Carol Kroch, managing director of
wealth and philanthropic planning at Wilmington Trust. "If you talked to
them you might get some interesting answers. You might find out the hedge
fund manager is afraid of losing his job and really wants to be a nursery
schoolteacher. Or the nursery schoolteacher says 'I didn't get into this
because I care about money.' "

Of course, that's presuming those children have the same parents. Treating
children from different marriages unequally is often necessary and fair to
care for the younger children; but it can be complicated by emotions.

"Parents need to have a conversation saying, 'You may not like the little
rug rats but I sent you to college and I need to send them to college,' "
Ms. Kroch said. "Surprise is not better. It's only better for the person
putting together the document who doesn't want to tell anybody."

Whatever someone's reason for distributing an estate unequally, the best
advice from lawyers and advisers is to tell heirs what to expect. If it's
too difficult to do, people should write a letter saying why they did what
they did.

"You need to spell out that you didn't forget a child," Ms. Kroch said. "But
that doesn't preclude someone from saying 'My stepmother made him do this.'
You could end up in litigation anyway."

In the case of Kate's grandmother, the estate was not worth the $10 million
or more that family members thought it was but was closer to $2 million to
$3 million, Mr. McManus said. After 18 months of legal battling, Kate and
her siblings ended up with about $100,000 to be split among them. But now
they don't talk to their aunts or cousins.

Kate said what still bothered her was not that small inheritance and all the
trouble it caused but the process itself. "It's really unfortunate that this
could take place at all," she said. "There was no conversation with my
grandmother about this. There was no letter that she signed saying that this
was what she wanted. I wish we had asked my aunts more questions."

And that is where these inheritance disputes come down to the toughest issue
in many families: clear communication.
https://www.nytimes.com/2014/06/21/your-money/unequal-inheritances-may-ignite-family-squabbles.html?_r=0