Elderlaw Advocates - April 2020
Dear Len & Rosie,
Both my husband and my son have recently died, leaving my daughter and me. My will was drawn up in 1989 so that my children would share equally if anything is left to share. My daughter has no children, but my son had two. Will my son's children split his share of my estate or must I contact a lawyer and make a new will? Or should I get a trust instead? I want to make sure that my grandchildren get their fair share.
The answer to your question depends on what exactly your will says. The dispositive provisions of your will (the part of your will that says who gets what when you die), probably say that your children will split your estate into shares by “right of survivorship” or by “right of representation.” These are important phrases that you should understand.
“Right of survivorship” means that each gift will lapse if the person you are giving it to dies before you do. If your son inherits through your 1989 will by right of survivorship, then your daughter will inherit everything when you die and your son's children will get nothing.
“Right of representation,” which is sometimes also called “per stirpes,” is what you want. If your gift to your son is by right of representation, then his gift will not lapse because he died before you. Rather, it will pass on to his issue, which means his two sons will share one-half of your estate. Your son's widow will get nothing.
If your will does not specify that your son's gift is either by right of representation or by right of survivorship, then you ought to have an estate planning attorney look at your will. California has an anti-lapse statute that could pass your son's half of your estate to his children, but it will not apply if the precise wording of your will shows an intention that your son must survive you to receive a portion of your estate. Your will should also hold your grandchildren's inheritance in trust until they are mature enough to be responsible with it. Otherwise, your 18-year-old grandson will spend it all on a new car that he can't afford to insure.
This can get a little bit complicated, so you should rely on the professional opinion of an attorney, instead of trying to figure it out for yourself. You do not want to make mistakes with your will, because you cannot fix them after you are dead.
You should also look into creating a trust. Wills pass through probate in the courts, which is very lucrative for attorneys. If you own a house, or if your estate is worth more than a couple of hundred thousand dollars, then you ought to consider a revocable trust. A trust will cost you more money than a will, but it will save your family time and money after you pass away.
Dear Len & Rosie,
My parents are fairly wealthy - they are worth over five million dollars. Is there any way I can put a barrier between me and my inheritance? I tend to be irresponsible with money. I played the lottery a lot and I used to make high-risk investments. Some investments have paid off but more have lost money. If I suddenly came into a million dollars, I don't know what would happen. I don't really trust myself. How do I tell my parents something like this without outright saying I am a bad person?
The first step towards solving any problem is recognizing you have a problem. You are certainly not a “bad” person because you lack prudent investment skills. There are several approaches you can take to preserve your inheritance once you get it.
Given that you're a lousy investor, get help. Don't listen to the little voice in your head that says to hold onto an investment that isn't doing well. Making investment decisions based on hunches alone isn't investing. It's gambling. Instead, hire a financial advisor with a good track record and rely on that person's advice. Consider having two separate financial advisors, so you can see how well they do against one another.
You should also talk to your parents. Instead of leaving you an inheritance outright, they could create a dynasty trust for your benefit. The idea behind a dynasty trust is that there are three fundamental problems with inheriting wealth. You can get sued and lose your inheritance. You can get divorced and see your spouse drive into the sunset in a Lexus your parents paid for. And, if you're lucky (or have a skilled financial advisor) you could do very well with your investments, so well in fact that your children will have to pay federal estate tax on your death.
A dynasty trust is, at its heart, a “spendthrift” trust that is not subject to the claims of the beneficiary's creditors (except for child support creditors and the IRS). It's also a convenient means of protecting your separate property inheritance in the event of a divorce. And your inheritance, and all of its appreciation, will be exempt, for the most part, from federal estate tax on your death.
With a dynasty trust, your parents can create a framework to manage your inheritance. The trust could require you to hire a financial advisor. If you are extremely bad with money, they could go so far as to make someone else your trustee, perhaps a brother or sister. Or maybe you and another person can be co-trustees, and you could be restricted from spending over a certain amount without your co-trustee's agreement. Your parents can also write restrictions in the trust as to how assets are to be invested. They can allow you to leave the trust upon your death to anyone you want, or they can require you to leave it to family members only.
It's important to remember that proper estate planning isn't done by filling in the blanks on a one-size-fits-all boilerplate document. It's about analyzing an estate and developing a multi-generational estate plan that will help your parents and their children achieve your goals.
Len & Rosie
Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at www.lentillem.com. Len also answers legal questions each weekday, Noon-1 p.m. and Sundays, 4-7 p.m. on KGO Radio 810 AM.