The Law Blog

Writing someone out of your will is not usually a pleasant topic of conversation. Yet, in my dealings with estate planning clients, it's not all that uncommon of a request - usually, parents are asking about either cutting a child out of their will entirely, or giving them a share that's less than what their siblings are getting.

If only the law in BC were that simple, however. Our legislation (the Wills Estates and Successions Act) states that your spouse and your children - even your independent, adult children - have the right to sue your estate if they feel like they have not been provided for "adequately". What if, for whatever reason, you don't want one of your children to get a share of your estate when you die? How can you prevent that child from suing your estate? The short answer is: you can't. But there are ways to reduce the risk of messy estate litigation. I'm going to touch on four ways to give money unequally to your children.

Strategy #1: Utilizing Joint Tenancies

The first strategy to consider when dividing your estate unequally is to put other names on assets you own. For example: real property, bank accounts, and vehicles. If someone else owns an asset with you, when you die, that asset will become the property of the surviving person on the title and won't become part of your estate. Simple, right?

Beware, however, that a legal principle called the "presumption of resulting trust" kicks in when adding an adult (and mentally capable) child on to a property, bank account, or any other asset that can be owned by multiple people at once. This legal principle states that, unless the child can prove that this is a true joint asset that they use and enjoy, they are presumed to be holding the asset in trust for your estate. In other words, the child does not actually own anything - they are simply keeping the home (or money, or car) safe for your estate. The asset then gets distributed as per the instructions in your will. While using joint tenancies may work, if a disgruntled child wants to fight it, they may have the law on their side.

Strategy #2: Set Up a Trust

The second strategy for dividing your assets unequally is to transfer your assets into a trust while you're alive. A trust is essentially a document that states that a certain person (the "trustee") is holds one or more assets in trust for the benefit of one or more people (the "beneficiaries"). Because the assets formerly owned by you are now owned by the trust, they don't fall into your "estate", meaning that they are not exposed in a potential estate lawsuit. Unlike joint tenancies, in which you remain as an owner, when you set up a trust you actually transfer ownership of an asset to a trust.

Don't rush into trusts, however, as there are lots of legal and tax-based consequences. My policy is to urge clients to talk to an accountant before setting up a trust. I don't give tax advice, ever.

Strategy #3: Name Beneficiaries Where You Can

Many people who find themselves wanting to cut a child out of their will don't realize that, for any investment accounts with beneficiaries - RRSPs, TFSAs, etc. - as long as there is a named beneficiary (other than the estate), this money can go to anyone the person wants. Assets with named beneficiaries do not go into "the estate" upon death, which, in turn, means that a child cannot sue for a share of that asset. Unlike joint tenancies, which can be risky, naming a beneficiary on an account is a solid way to get money to someone while minimizing the risk of a lawsuit.

Strategy #4: Give Away Your Money While You're Alive

The final strategy for cutting someone out of a will is to simply give away your assets while you're still alive. Obviously, this strategy isn't always the answer and is usually more suitable for someone already planning for their passing and getting their affairs in order. But, the simple fact is that, the less money in an estate, the less worthwhile it is for a disinherited child to sue.

Should You Cut Someone Out of Your Will?

There are ways to disinherit a child. But, should you? Aside from the legal risks to your estate, bear in mind the potential strains on your survivors.

Consider this scenario: a will-maker ("WM" for short) has three adult children, one of whom is estranged from WM, but still speaks to his siblings. WM names one of the two other children as his executor. WM decides not to give the estranged child a share of his estate, despite his lawyer's warning about the risk of a lawsuit.

WM eventually passes away. Estranged child is angry about being cut out, and decides to sue the estate. Suing "the estate", however, really means that the estranged child is suing the executor child. Now, two of WM's children are in a legal battle over WM's estate. So, before you decide to take the drastic step of cutting someone out of your will, consider the lasting impact your decision will have after you're no longer around.

Conclusion

As I tell clients who ask me about disinheriting a child: it's your money, and you're entitled to do whatever you wish with it. Some wishes are riskier than others, however. While there are strategies to minimize the risk of a lawsuit against your estate - utilizing joint tenancies, holding assets through a trust, naming beneficiaries, and giving away your money while you're still alive - the only way to eliminate the risk of a lawsuit is to give more-or-less equally to all of you children, or at least equally enough so that a lawsuit isn't worth the time and money. (And, since I'm asked all the time: no, you can't just give your child $1 and call it a day.)

No matter what you want to do, make sure that you talk to a lawyer first. Navigating this area of law without a lawyer is like walking through an active minefield with your eyes closed. As I've discussed, there are options, but you need to be careful and be aware of the risks of cutting a child (or spouse) out of your will.