No Wool for the Black Sheep: Estate Planning for Clients with Estranged Family Members

Journal of Financial Planning: December 2024

NOTE: Please be aware that the audio version, created with Amazon Polly, may contain mispronunciations. 

Abbey Flaum, J.D., LL.M., is principal and family wealth strategist at Homrich Berg. Abbey applies the company’s holistic approach to each client’s planning, and she provides clients with ongoing, personalized guidance on tax-efficient wealth, business, and estate planning strategies.
 

JOIN THE DISCUSSION: Discuss this article with fellow FPA Members through FPA's Knowledge Circles. 

FEEDBACK: If you have any questions or comments on this article, please contact the editor HERE. 

Although families often try to portray themselves like Norman Rockwell paintings in society, the unfortunate truth is so many of those smiles you scroll through on Instagram are masking feelings of anger, hurt, resentment, or frustration. More families than you think have at least one family member who marches to the beat of their own drum—the “black sheep,” a person who falls victim to substances, holds extreme beliefs, is a spendthrift, or who just does not have a good relationship with anyone. Research shows that as many as one in four people have experienced estrangement from at least one family member.¹

When engaging in estate planning, these underlying family dynamics may significantly shape the structure of the client’s plan, but few clients walk into their adviser’s office and immediately disclose, “My son has a substance abuse problem, and I’m worried about what will happen if I leave him a large inheritance.” More commonly, clients keep their family conflicts hidden, either out of shame or simply because they do not realize the importance of disclosing this information for the purposes of estate planning. 

How do advisers encourage clients to speak freely about such sensitive subjects? This process begins with building a relationship of trust and creating a safe, judgment-free space for clients to share personal and sometimes painful details about their family dynamics.

Creating a Safe Space 

Trust does not appear overnight. It grows from ongoing, genuine care, demonstrated through active listening, displays of empathy, and the firm maintenance of confidentiality. Reassure your clients that any sensitive information they share is and shall remain confidential and remind them that your goal is to assist them in devising the right estate plan for their goals.

Clients may not realize the critical role family dynamics play in estate planning. Some might believe concealing family issues could prevent conflict or shield family members from potential embarrassment. When clients understand sharing the truth may reduce the probability that problems with their plans will arise in the future, they may feel more encouraged to disclose difficult aspects of their family situation.

Asking open-ended, non-judgmental questions can help you, as the adviser, gather the necessary information to construct an effective estate plan:

• “Does everyone in your family get along?”
• “Are there any family dynamics we should consider when planning your estate?”
• “Do you want to provide equally for all your children, or would you like to make different provisions based on each individual’s circumstances?”
• “Is there anyone you specifically wish to exclude from your estate plan?”
• “Do you have any concerns about how your estate might be handled by particular family members after your death?”

These questions open the door for your clients to share difficult truths without feeling judged or rushed. Some clients may need multiple meetings before they feel comfortable enough to disclose potentially uncomfortable family issues. The more patient and understanding you are, the more likely they are to eventually share critical information.

To Trust or Not to Trust

When a client does not wish to include a child in their will, the first consideration you may offer is an alternative estate structure: the use of a pour-over will with a revocable trust. Revocable trusts offer clients a greater degree of control over how their assets are managed and distributed during life, in the event of their incapacity, and after death. Unlike a will, a revocable trust allows for asset distribution without court involvement via the probate process, ensuring more privacy, eliminating the need to include heirs in the estate administration process, and reducing the likelihood of legal disputes. 

A pour-over will directs one’s estate to a revocable trust, which provides for the management and administration of one’s assets during life, in the event of incapacity, and after death, when it behaves like a will in directing the distribution of the estate. This basic will would exist solely to ensure that if your client overlooks any assets in the retitling of accounts and other property (addressed below), the will directs such overlooked items to the trust. There are several reasons why this structure may be preferred by a client whose estate plan is anything other than a vanilla-flavored variety of “everything for my children’s other parent, and then equally for the benefit of my children”:

1. A revocable trust may provide for an easier and more private transition of the management of assets in the event of incapacity than simply relying on a financial power of attorney. This type of trust may help to prevent an estranged family member from challenging the use of a power of attorney or baselessly accusing your client’s agent of wrongdoing in using the power of attorney during times of incapacity. A revocable trust may detail a protocol for determining your client’s incapacity without involving a court and by concealing the identity of your client’s selected individual(s) to manage their affairs when they are mentally unable to do so themselves.

2. If your client titles their taxable assets in the name of their trust during their lifetime, then their estate will avoid probate.

• In most cases, one’s heirs-at-law must be notified about the probate of a will early in the probate process. If an heir is looking to mount a legal challenge to your client’s will, timely probate notification may provide an easy opportunity for them to secure counsel and file a legal claim before the expiration of the court-provided window to do so. In a properly implemented plan that includes a revocable trust, probate and such notification of one’s heirs may be directly avoided.
• This retitling does not have to change your client’s access to their assets or their ability to do what they want with them, nor does it change any income tax reporting whatsoever. Yes, such retitling can be a bit of a headache for the adviser in terms of establishing new accounts, obtaining tax identification numbers, and confirming all titling with the client’s attorney, but because such retitling is necessary to avoid probate, a little headache now is worth avoiding a pulsating migraine later.
• Remember to work with a client’s attorney in the retitling process, as not all property should be retitled into the name of the trust.

3. Unlike a last will and testament, which is available for the world to examine once filed with the court or submitted for probate, a revocable trust maintains one’s wishes for the estate off the public record, promoting privacy. Depending on the language of a will, those searching the public records may not know the value of the assets passing to the various beneficiaries, but they may likely discover the names of the beneficiaries, their contact information, the manner in which they stand to inherit, and the identity of the executor (the individual or individuals in charge of administering the estate); in other words, who to solicit and how. A revocable trust, however, is generally not required to be filed publicly, thereby maintaining the identity of the beneficiaries and trustees—the individual(s) in charge of administering the trust—as private.

• If your client’s wishes are private, vendors who would solicit an estate are not the only ones cut off from viewing the trust. A ne’er-do-well relative would need to think long and hard about how the provisions of the trust may be read and if they want to spend money consulting with legal counsel just to be able to attempt to receive a copy of the trust and discuss whether they have a case to pursue trust assets before doing so.
• If a disgruntled child seeks to know how your client’s other children are treated under the terms of a trust, they may find such a task to be an insurmountable one because of the privacy a revocable trust affords your client and their wishes.

Words Matter

There is a distinctly Hollywood idea of the “official will reading” that is frequently on the minds of clients when discussing the disinheritance of a family member. Allay your clients’ concerns about the ramifications of exposure of their wishes among their family by explaining that, more often than not, there is no official will reading. Offer that, to ensure the client’s wishes are obeyed following death, the best tactic is to articulate intentions relating to family inheritances deliberately and specifically.

Think about it: Whether you are a daughter who receives a copy of dad’s trust or you are wife No. 3 sitting in your late husband’s attorney’s office, imagine how you would feel if your name were not mentioned at all in the explanation of the distribution of the estate. Would you be surprised? Shocked? You might even think your exclusion had to have been a mistake. You do not know the attorney who drafted the trust; perhaps they inadvertently excluded you? This is why a client seeking to cut off certain family members must address that intention head on, in several ways:

1. Explicit disinheritance. A common pitfall in estate planning is vague or ambiguous language. Phrases like “I have chosen not to include my son, John, as he has been well provided for” may open the door to legal disputes. Disinherited family members could argue that the client was not of sound mind, that he did not fully understand the consequences of his decision, or that he did not understand his plan, as John was not otherwise provided for in the manner John believes the client intended. Instead, encourage clients to be explicit about their intentions. For example, a clear disinheritance clause might read, “I intentionally—and not by mistake—exclude my son, John Doe, from any share of my estate. This decision is made with full knowledge of his existence and is deliberate.” Unambiguous language minimizes the likelihood of a successful legal challenge. In some states, further including that such direction is “material to the provisions of the trust” adds a level of significant legal emphasis to such language.
2. Documenting the decision. Medical records, letters, and even therapist reports may be useful if the client’s mental capacity is called into question by an unhappy beneficiary after the client’s death. Interview your client to help them draft a simple explanation of their rationale in designing the estate plan, to be maintained in the file as evidence of their intentions to further bolster the estate plan’s defense against legal challenges that may arise.
3. Instilling fear. The Latin phrase in terrorem means “in fear,” which is why a clause many attorneys include in legal documents to instill a fear of contesting the documents is called an in terrorem clause. This provision, also known as a no contest clause, warns that any beneficiary who contests the will or trust shall be deemed to have forfeited his entire inheritance. For this clause to act as the powerful deterrent it is designed to be, a beneficiary must be given something to lose in the terms of the will or trust in question. Too many documents leave one dollar or some other nominal amount to a beneficiary, often unintentionally resulting in an effective slap in the face and an invitation to provoke a contest. The beneficiary must stand to lose a meaningful amount of value that would make them think twice before engaging in legal war, and your client will likely have an idea of the correct amount. For some, leaving a penniless child $1,000 would suffice, while for others, the requisite figure may fall in the millions. This bequest-and-scare tactic is not appropriate for everyone. What’s more, not every state will recognize a no contest clause. At a minimum, discussing the inclusion of this clause in the client’s will and revocable trust with their attorney is a good precautionary step in planning for a client seeking to exclude an heir from their estate.
4. Telling it like it is. Encouraging open communication with family members—either directly or through a family meeting—can also reduce the risk of disputes. Clients might find it uncomfortable to inform an estranged family member that they have been disinherited, but doing so can prevent surprises that could lead to legal battles. In some cases, a mediator, attorney, or a trusted wealth adviser may facilitate these conversations, allowing for a more structured and less emotional discussion. In the best of cases, such a family meeting might provide an outlet for reconciliation, which, in turn, may ultimately lead to a revised estate plan that includes everyone.

Public Policy: It’s Not Always Personal, It’s the Law

State laws play a significant role in determining what a client may and may not do in his estate plan. In some cases, it may be impossible to completely disinherit certain individuals, such as a spouse or minor children. This is where understanding local laws and utilizing legal workarounds becomes essential.

Spousal Rights and Waivers

In many states, spouses are entitled to a portion of the estate, regardless of what the will or trust says. However, prenuptial and postnuptial agreements can be used to waive a spouse’s right to claim a portion of the estate. For example, if a client has remarried and wishes to leave most of their estate to children from a previous marriage, a prenuptial or postnuptial agreement can help ensure the client’s wishes are honored.

Gifting, Titling, and Beneficiary Designations

Another strategy for clients who want to disinherit a family member is to reduce the size of their estate by gifting significant assets during their lifetime. By making substantial gifts to their intended beneficiaries while they are alive, clients can minimize the assets available for distribution after their deaths. Beneficiary designations on accounts like retirement funds and life insurance policies also allow clients to bypass probate and ensure assets go directly to their intended recipients, without the risk of a legal challenge from an estranged family member.

Certain assets may be shielded from state-mandated inheritances. For example, in some states, if your client purchases life insurance through an irrevocable life insurance trust, the life insurance may be rendered outside of a spouse’s reach. Sometimes, the simple act of retitling assets into one’s revocable trust removes those assets from the levy of mandated inheritances simply because the retitling renders the assets non-probate assets.

Sometimes, adding a beneficiary designation or a transfer-on-death designation to an asset ensures that such asset passes to intended recipients and not as a state otherwise mandates. A beneficiary designation is a form completed by the account or asset owner and maintained by the asset custodian that mandates who receives the asset upon the account owner’s death. Beneficiary designations may be changed as often as the asset owner pleases, so in the event of a change in plans later, this form may be updated.

As your client’s trusted adviser, it will be important to work with her estate attorney to ensure the consideration of state-specific laws regarding inheritance, spousal rights, and minors navigating disinheritance issues.

Estate planning for clients with estranged family members is a delicate and often complex task. It requires advisers to approach sensitive family issues with empathy, tact, and a deep understanding of legal strategies that can mitigate potential conflict. By creating a safe and trusting environment for clients to share their family dynamics, and by offering clear, thoughtful solutions, such as revocable trusts, explicit disinheritance clauses, and strategic asset distribution, advisers can help their clients craft estate plans that minimize future disputes and honor their wishes. 

Endnote

1. Schumer Chapman, Fern. 2024, February 19. “What Research Tells Us About Family Estrangement.” Psychology Today. www.psychologytoday.com/us/blog/brothers-sisters-strangers/202402/statistics-that-tell-the-story-of-family-estrangement.