How to Handle Unequal Inheritance

Unequal inheritance usually happens between parents, children, and grandchildren. It causes hurt and conflict when parents leave assets unequally between children and grandchildren with the one receiving less feeling unloved and unappreciated.

On the part of parents, it is important to ensure that your estate planning documents are flexible enough to respond to any change in circumstances of your children to help and support them in cases of unforeseen financial need, such as an accident leading to long-term disability or long-term medical care. Moreover, communicating the rationale of unequal inheritances will minimize any doubt that the parent was unduly influenced in making the unequal inheritance and lessen the risk of unnecessary will contests.

On the part of the heirs, it is equally important to determine whether the unequal inheritance is intentional or unintentional. If it is unintentional, an estate litigation attorney will be able to help you recover the inheritance you are entitled to. If it is intentional, understanding the motivation of your parents in giving out unequal inheritances can lead to acceptance and contentment.

Flexible estate planning in unequal inheritances

Many parents resort to unequal inheritances when they feel one child needs it more than the other (i.e., a child with no job vs. a child with a high-paying job), one child has more children than the other, one child has received more financial assistance during the parent’s lifetime than the others (i.e., the child who went to state college vs. the child who went to university), one child who lived closer took care of the parents during their aging years (also called caregiver’s equity), or one child received an advance in inheritance by borrowing a substantial sum from the parents during the parents’ lifetime and has not paid it back.

These circumstances can lead a parent to make unequal inheritances. However, one’s estate planning documents should still be flexible enough to take into account unforeseeable circumstances. For example, a parent resorted to unequal inheritances because two children were working in a high-paying industry while the other child was struggling financially. The will was drafted to reflect this unequal inheritance. However, what happens when the child who was working in a high-paying industry suddenly gets into an accident and becomes disabled? The will, as drafted, would be unable to respond to this change in circumstance.

There are some estate planning tools one can use to ensure that the parent’s estate planning documents, despite making unequal inheritances, can respond to unanticipated circumstances.

• Family pot trusts

Family pot trusts are usually used when children have large gaps between each other and one of them is a minor. Here, the beneficiaries are all the children, and the trustee is given broad discretion to determine how much each child will get based on certain parameters such as basic living expenses which would include health, maintenance, education, and support. When the youngest beneficiary reaches a certain age, such as 25 years old, any remaining trust property is distributed equally among the beneficiaries.

Family pot trusts allow the trustee to distribute assets to beneficiaries based on need, for education, or in case there is an unforeseen health emergency. So, even when the initial proposed distribution to beneficiaries is unequal, in case one of the beneficiaries suffers an unanticipated financial emergency, the trustee has the discretion to provide and increase the distribution to such beneficiary.

• Spendthrift trusts

Spendthrift trusts are usually used to support beneficiaries, yet at the same time, protect the assets from the beneficiaries. Here, the trustee either makes regular payments to the beneficiary or buys goods and services for the beneficiary, but the beneficiary or the beneficiary’s creditors cannot access the trust assets. It is only when payments are made to the beneficiary can the money be available to the beneficiary’s creditors. Spendthrift trust provisions can be incorporated into another trust.

This is an estate planning tool in unequal inheritances, especially when a beneficiary is given more because he is financially struggling as compared to the other beneficiaries. A spendthrift trust will provide for the beneficiary’s needs yet protect the assets from the beneficiaries’ creditors.

• Power of appointments

Power of appointments can either be limited or general and included in wills or trusts, giving a third person the ability to dispose of the deceased person’s property. Even if the trust agreement or will already provides for a proposed distribution, the person granted the power of appointment can modify this distribution either on his discretion or based on certain parameters.

For example, a parent creates a will, establishing a trust for the benefit of his spouse. The parent gives his spouse the power of appointment to choose the beneficiaries of the trust from the parent’s children, such power of appointment to be exercised when the spouse dies. This allows the spouse the opportunity to reevaluate the family situation after how many years to make an equitable (though unequal) distribution of the parent’s assets to the parent’s children.

A power of appointment can be general or limited. It is limited when the person is limited to choosing the beneficiaries from a class of beneficiaries. It is general when the person can choose whoever beneficiary the person likes to receive the assets.

Power of appointments provide flexibility to account for unforeseen circumstances in family situations.

Minimizing risks of will contests and issues of undue influence

Unequal inheritances usually result to unhappy beneficiaries, especially when these unhappy beneficiaries were kept in the dark about the reasons for the inequality. In most cases, beneficiaries suspect that the parent had been unduly influenced into making the unequal inheritance and will thus resort to contesting the will. To minimize unnecessary will contests and issues of undue influence, it is advisable that the parent making unequal inheritances prepare a detailed letter that will accompany the will, explaining the rationale for the unequal inheritance. By communicating the reasons, doubts about undue influence can be diminished, lessening the risk of a will contest.

In addition, if the parents advanced a substantial amount of money to one child during their lifetime, the parent should document this through a promissory note, and if it remains unpaid, consider this as an advance of the inheritance. This should be explained as well in the letter so that the children understand the reason for any perceived unequal inheritance.

If one of the children has been providing caregiving services, a caregiving agreement is also recommended, which would outline the compensation the child should receive for the caregiving services. If unpaid for the caregiving services, this amount can be taken from the estate before any distribution is made. This will make any distribution equitable and prevent any conflict between the siblings.

Intentional vs. unintentional unequal inheritance

On the part of an heir, it is important to determine whether a parent’s unequal inheritance is intentional or unintentional.

If it is intentional, accepting the situation with love, compassion and understanding can resolve the pain and hurt arising from the unequal inheritance.

If it is unintentional, an estates litigation attorney will be able to help you recover the inheritance you are entitled to. Unintentional unequal inheritance happens when when the deceased person transfers his assets to the beneficiary only for the purpose of helping him out. For example, a parent adds the child to his bank account as a joint owner in order to help the parent out in paying his bills and managing his property. The parent, however, tells the child and all his other children that on his death, he wants the child to share the entire amount in the bank account with his siblings equally. The parent, however, does not write this in the will. When the parent dies, the child receives the entire amount in the bank account as a joint owner and does not share with the siblings.

Here, the unequal inheritance is unintentional. The parent did not intend for the child to get the entire amount in the bank account. The child was only added for the convenience of the parent in paying bills, making deposits, and managing the parent’s property.

In New York, if you can prove that an account was established only for the convenience of one bank account owner and the other account owner did not contribute any funds to such bank account nor use any funds in the bank account for his personal expenses, you can have the court declare such bank account to belong to the estate of the deceased person and not to the surviving joint tenant.

You can also allege that the deceased was unduly influenced into making the unequal inheritance by the beneficiary who received the most. An estate litigation attorney will be able to assist you in determining whether you have a strong case for undue influence in a will contest.

Should you need assistance in estate planning or estate litigation, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [email protected].

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