Are you thinking about disinheriting your kids?
Experts say that deciding to cut off a child or children in your will comes with financial, emotional, and practical considerations. It’s your right to not pass your assets on to an independent adult child or children, but it’s important to get good advice, document your reasons, certify your state of mind and communicate your wishes to those you are disinheriting.
“It shouldn’t come as a surprise,” says Rachel Blumenfeld, a partner in the tax, trusts and estates group at Aird & Berlis in Toronto and deputy chair of the Society of Trust and Estate Practitioners (STEP) Canada.
She says the reasons parents disinherit kids can range from disagreements over lifestyle choices or political views to feelings of estrangement, concerns that their heirs don’t need money and fears that their offspring lack the judgement or the financial wherewithal to handle the funds.
Short of entirely cutting off a child, a parent could establish a testamentary trust that spreads out an inheritance so that it’s given at certain ages, says Ms. Blumenfeld, who has seen those benchmarks rise with the aging population. A so-called incentive trust can tie the funds to a child attaining certain education levels, even grades, she says, or it can stipulate that the child must hold down a job and perhaps match the salary earned.
When clients declare they want to disown a child or children in their will because of a rift in the relationship, she carefully documents the timeline and facts of the situation.
“It’s a process…It’s not a 10-minute conversation,” Ms. Blumenfeld says.
She adds that the ability to cut off a child entirely can vary by jurisdiction. For instance, in some provinces such as B.C., disinherited children have sued successfully to get something from the estate. And Ms. Blumenfeld cautions that people with assets like real estate in other countries could be governed by “forced heirship” rules.
Protecting your will from disputes
Angela Casey, an estate litigator who is a partner at Casey and Moss, a boutique law firm in Toronto specializing in estate and power-of-attorney disputes, points out that the Ontario Court of Appeal has confirmed there is no obligation to leave anything to an independent child over 18.
“But if you have a child who is financially dependent on you, you have an obligation to provide for that child in your will, or in some other way,” she says.
For example, if you’ve been providing free housing to your children, they can argue they’re dependent and apply for relief under the province’s Succession Law Reform Act. Ms. Casey has seen this happen even in wealthy families where kids argue they “had always been on the ‘family payroll’ and they successfully brought a dependent support claim for millions of dollars.”
The most common ground of attack when an independent child is left out of a will is to challenge it as invalid. Ms. Casey says this can be because the parent was subject to undue influence, for example, manipulated by one of the other children, or because the parent didn’t have the mental capacity to understand the terms of the will, which can especially be argued as people age and their cognitive abilities decline.
The best way to protect against such attacks is to document your reasons, Ms. Casey says. This should be done by a lawyer with a good reputation who knows you fear that the will might be challenged.
“Spend the time and money before your death to safeguard your wishes,” she says.
Ms. Casey suggests meeting with the lawyer alone rather than bringing someone with you “because there could be an argument that that person is influencing you.” The lawyer should take careful notes and ask probing questions to ensure “you have the requisite capacity to understand what you own, which people would expect to receive an inheritance from you, and why you’re cutting them out,” she says.
It’s also important to prove you had adequate mental capacity at the exact time you wrote or redrafted your will. Ontario, for example, has a Capacity Assessment Office that certifies qualified capacity assessors. These include doctors, nurses, psychologists, social workers and occupational therapists trained in evaluating people with dementia, mental illness, brain injuries and intellectual disabilities.
Another good way to protect against a challenge to your will is to update it from time to time, Ms. Casey says, restating elements like the fact that you’re cutting out a child or children to show that it wasn’t a decision you were temporarily influenced or not competent to make.
Peter Weissman, a tax accountant and partner at Cadesky Tax in Toronto and chair of the public policy committee of STEP Canada, notes there are ways of disinheriting or reducing what children get without removing them from or treating them unequally in your will. For example, naming a child or children as the beneficiaries of your registered retirement savings plan (RRSP), registered retirement income fund (RRIF) or insurance policy means that those assets go to them upon your death rather than flowing through your estate.
“The result is directing extra funds to certain children, or others, and fewer assets to be governed by your will,” Mr. Weissman explains.
He cautions that it’s important to state at the time of the designation that you intend to leave the funds to the specific persons named. Courts in some jurisdictions have ruled that without sufficient proof that the parent intended to make a gift to a child, there is a presumption he or she is holding the assets in trust for the estate.
Mr. Weissman also warns that simply adding a child’s name to your bank account or other financial holdings does not necessarily transfer ownership to that child.
“In such cases, it could be argued that the measures were taken for ease of administration and not succession purposes,” he says.
Being transparent about the decision
Warren MacKenzie, head of financial planning at Optimize Wealth Management in Toronto, believes parents should tell children up front of their intentions. Those looking to avoid confrontations over the contents of the will can bring in an outside facilitator to help explain their reasoning.
Parents often worry their children will waste a large inheritance or that it will ruin their lives. Mr. MacKenzie has one client who plans to gift funds to his children in stages and help them manage.
“Teaching them how to handle the money is important,” he says.
He argues that giving children a “reasonable expectation” of what they will get from the estate can impact their own financial planning. He had a client in his late 40s who saved next to nothing for retirement because he was an only child, and his elderly father owned a huge house.
“He said, ‘When dad’s gone, I’ll sell the house. There’s my retirement,’” Mr. MacKenzie recalls. However, when he passed away, it turned out the father had a huge mortgage on the property and owed a bundle to the Canada Revenue Agency.
“There was just barely enough to cover the funeral costs,” Mr. MacKenzie says, and the son ended up in dire financial straits. “If he had known that there was no inheritance, he would have been saving money, and things would have been so much different.”
Ms. Casey points out that if you do cut off a child in your will, leaving detailed communications for them can avoid legal problems after you’re gone.
“We see clients who are willing to start a will challenge just to find out what actually happened and what their parent was thinking,” Ms. Casey says, because by instituting a formal court proceeding, they would likely obtain court-ordered access to the notes of the lawyer who drew up the will.
“It can be a devastating blow if you don’t understand why your parent didn’t leave you a gift.”
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