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.