Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Portfolio > Alternative Investments > Real Estate

Do You Know These Shocking Truths About Wills?

Your article was successfully shared with the contacts you provided.

Since most people don’t want to face their own mortality, it’s not hard to get why most people don’t create a will. But that’s far from the only shocking truth about wills. Estate attorney Jason J. Smith, an authority on how to avoid or defend contested wills, reveals several others in an interview with ThinkAdvisor.

Here’s a sampling:

  • Generally, “the only person you can’t completely disinherit is your spouse.”
  • “Children have no right to an inheritance.”
  • “The No. 1 predator reaching for an inheritance is a potentially divorcing spouse.”
  • “A disinherited child can essentially shake down” a parent’s estate.

Another truth, of particular interest to financial advisors with solo practices, is that after they die, the only folks who can legally operate their business and receive compensation are licensed FAs, Smith says.

Most people don’t want to think about the nitty-gritty of their potential wills and are quick to make erroneous assumptions about what’s going to happen to the assets they leave and the rights of beneficiaries.

Smith, who earned a J.D. from Yale Law School, founded his practice — with offices in Greenwich, Connecticut and midtown Manhattan — in 2018, after practicing law at three firms. He developed a trusts and estate litigation group at Meltzer, Lippe, Goldstein & Breitstone.

ThinkAdvisor recently interviewed the attorney, speaking by phone from Greenwich. In a 2018 article he penned for the Nassau Lawyer, headlined “Keeping Wills Safe from Attack,” Smith details a host of ways. One painless approach: Update your will every couple of years. The revision could be as minor as changing a comma to a semicolon, he points out.

Here are highlights of our conversation:

THINKADVISOR:  Can just anyone a solo financial advisor designates in their will take over their practice when they die?

JASON SMITH: In most states, when a licensed and regulated [solo] professional — like a lawyer, doctor, accountant or financial advisor — dies, an unlicensed person won’t be able to operate their practice. Even if they own the firm, they can’t be compensated for financial services without a license. 

Are many advisors misinformed about this?

[Solo professionals] often assume that their estate executor — maybe, spouse or other family member — would handle their practice. Not so. All they’re allowed to do is wind up the business or sell it, if they can. When a solo professional dies, their clients [or patients] will simply find someone else. So the business is generally worthless in the hands of the estate.

How could a professional have better provided for their family after death?

If they had worked out a transition plan or even sold the business or brought on a junior partner, the practice likely would be worth a lot.

Is it possible for a husband or wife to disinherit their spouse?

Pretty much across the U.S. the only person you can’t completely disinherit is your spouse. In New York, for instance, you have to [leave] one-third of your estate to your spouse; you can give two-thirds to basically everyone else. Various states have similar rules with, maybe, different percentages. 

What happens to your estate if you’re married, have minor children and die without a will?

It makes my clients’ jaws drop that in many states, half the inheritance goes to the kids and half to the spouse. A court-appointed guardian receives the children’s half, which, generally can’t be used for their support. So it’s a complete disaster for the spouse who isn’t working. They get only half the estate and have to use it all to pay for the kids’ support.  

What advice would you give to an adult child who receives, say, a $1 million inheritance?

If they’re married or if they marry later, instead of putting that money into their paycheck account, they should put it into a separate private account or a trust — depending on amount — and treat it as what’s known as “separate property.” It shouldn’t be used as part of the [couple’s] household budget. 

Why? What’s at risk?

If they don’t do that and they get divorced later, there’s a very good chance the ex-spouse will get half that inheritance — even though a lot of states say inheritances aren’t subject to equitable distribution in a divorce. The ex-spouse will receive it simply because that money has been commingled with assets the [couple] had. It could be cash or a minority interest in a family business. The No. 1 predator reaching for an inheritance is a potentially divorcing spouse. 

Many people think they can disinherit their child in their will. What’s the law?

They can write, “I’ve made no provision for Sally because we’re estranged.” End of story, right? Well, not so fast. Even though the child has no right to receive an inheritance, they usually have the right to drag out litigation involving probate of the will. They have certain standing to claim that the will wasn’t validly executed — that it was procured through the undue influence of someone else or fraud.

So that’s something the decedent should have considered, correct?

Yes. I refer to [the above] as a “heckler’s veto”: You followed the law but because your child has this special standing, they can essentially shake down your estate and get something anyway. 

What provision can be made in a will if a child has mental health issues?

Let’s say a client’s child has an emotional illness, though they may be fairly well functioning and don’t qualify for public assistance. Do you really want someone who [suffers from] this and who’s, maybe, vulnerable to people who would take advantage of them, to receive a substantial inheritance outright? Instead, you might want to think about a trust to protect the child from himself or herself.

But the child would probably be shocked at that upon the parent’s death, right? 

Yes, and they might be particularly upset to see that their “stable” brother or sister is getting their money outright vs. theirs being held in trust. Therefore, I tell clients that [pre-death] they need to explain this situation to the child or better yet, write a letter that I can deliver to them after the parent dies. That way, it’s a private document and can take away the sting and shock.

Please talk about a situation where a disgruntled adult child objects to their parent’s will.

If the [decedent] has, say two children, and the will says that the inheritance is to be divided 70%/30%, the child [that will receive] less might [claim] the will was procured through undue influence. That might work. Even if it doesn’t, by forcing the estate to incur all that litigation expense and delay, they might [end up] get[ting] 50% anyway. 

What if a parent’s will stipulates that their adult child’s inheritance of say, $5 million, can be passed on only to blood relatives and that there’s a bank co-trustee. Can that be overturned?

They probably have no recourse because they had no right under the law to receive anything at all. However, once the money is in the child’s hands [via], say, annual distributions, it’s their money to do what they want with it. If you’re a parent that’s going to use a trust in your estate plan, you want to put restrictions on how much can come out and for what purpose. Details really matter when you’re talking about a substantial inheritance. 

Some heirs are shocked at how much money is in their parents’ estates, which they’ve now inherited. Should the parent have prepared them for that?

If things are harmonious, it’s [advisable] to have conversations with the adult child so they can get a pretty good understanding of your estate plan.

But what if the parent is concerned that their child might not be motivated to be work if they’re aware that they’re getting a big inheritance?

I have a lot of clients who didn’t come from money but earned millions and want their children to get job experience and contribute [to society] in a meaningful way. For a lot of them, we create trusts for the kids where an independent trustee decides when and how much is to come out of the trust. That can be a good way to lock it down.

How important is it to update one’s will?

It’s shocking how outdated wills can be. Very often people put together a [short] “sweetheart will” when they first get married that usually says, “If I die and my spouse survives me, [they’ll] get everything outright.” Then they have kids, 20 years go by, and they‘ve accumulated millions of dollars of wealth. But they haven’t made any changes to that original will. Now they’re worth $10 million and have grown kids and grandkids. So the will is completely inappropriate, including the tax considerations.

What if an aggrieved child claims their parent’s will is invalid and gets it thrown out? Can the estate do anything about that?

The law says if the most recent will is thrown out, [just] go back to the will that was written before the new one. When you update your will, you can modify it in only some minor way, like changing a successor trustee who’s three layers down. Update it every year or couple of years because in the [above] scenario, for instance, the child would have to go through every single one of those wills to benefit from their litigation. This can fend off litigation more successfully than almost anything else.

What have you personally found to be the most shocking thing about wills?

That a lot of people don’t have one. When I give talks to financial advisors and accountants — a group that you’d think would be more likely to have a will — fewer than half say they do. Everyone needs to have a will because the issue is: What happens if you don’t have one?

— Related on ThinkAdvisor:


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.