What to Do with the Black Sheep Beneficiary

Most families have black sheep. You know what I’m talking about. There might be three siblings, but one of them doesn’t play well with the other two. It’s been that way since they were in elementary school, but the strain in the relationships lasted—if not became amplified—well into adulthood. 

A parent may love all her children equally and want to treat all the same in the estate plan. But is this wise? Another issue is what to do about the black sheep who estranged himself from everyone in the family, including the parents? Should the parents continue to include that beneficiary in the estate plan? 

Let’s first examine more deeply the first issue, where we have a parent who loves all her children, but they don’t get along. Commonly, my clients express a desire to name all their children together to act as successor trustee, personal representative (executor), and health care surrogate. When you have children who don’t get along, this could be a huge mistake. 

Keep in mind that when a parent falling critically ill or even dying may create an emotionally charged situation. Sibling grievances long suppressed tend to bubble to the surface. Add into the situation that many crucial decisions must be made, and you have a recipe for disaster.   

Consequently, when dealing with financial issues, such as with wills and trusts, it is prudent to carefully consider who you’ll name as your successor trustee and personal representative. I’ve seen situations in the past where one of the children is named as the financial trustee, and who works diligently, spending many hours taking care of her parents’ affairs, only to be accused of swindling or wasting money.  

The adult children who are not involved in the day to day financial decisions don’t commonly understand the burden, nor do they understand the costs of critical care, particularly nursing home care at the end of a parent’s life. What was once a large estate could dwindle in the face of those expenses.  

One potential solution is to name a corporate trustee or co-trustee with one of the children. Having a bank or trust company serving as trustee adds a layer of assurance that the trust terms are adhered to and that no trustee is improperly taking assets for her personal benefit.  

Upon the parent’s death, there are more complex administrative matters to consider. Having a corporate trustee present to help with the “heavy lifting” oftentimes takes a burden off an already stressed adult child.  Another option is to engage a good estate attorney who is well versed in the various duties and laws associated with the responsibility of administering an estate and that has the manpower to deal with the daily issues that arise. 

What to do about our second issue – the black sheep that has estranged himself from the family? Oftentimes clients will ask me whether it would be best to disinherit that beneficiary, leave him a fixed dollar amount, or a smaller percentage of the estate. 

The answer is – it depends! If you feel that the adult child should receive some portion of the estate, a fixed dollar amount is easier to deal with from an administrative standpoint than is a percentage of the estate. Once the fixed dollar amount has been distributed, the beneficiary is not entitled to any accountings. A beneficiary entitled to a percentage of the estate, even a de minimis percentage such as 2%, is entitled to all the documents and accountings that a beneficiary with a significant interest is entitled to. 

Keep in mind, however, that a bequest of a fixed dollar amount usually has priority and is paid out first before the percentage beneficiaries. In other words, if you leave $100,000 to Beneficiary A, and then 50% of the remainder to Beneficiary B and 50% to Beneficiary  C, if all you have left in the estate is $200,000 at your death, Beneficiary A gets his $100,000, but Beneficiary B and C will only receive $50,000 each. If you want to limit the amount of the specific bequest to a percentage of the estate, you can do so without giving that beneficiary access to the accountings and documents.  

If you feel that you would rather disinherit the black sheep beneficiary, it is better to completely disinherit him as opposed to leaving a stated dollar amount such as one dollar, it is always best to simply disinherit completely. Even bequeathing a small amount gives the beneficiary legal rights that he otherwise would not have had. 

Black sheep beneficiaries are never easy to deal with. Nevertheless, when they exist it’s always a good idea to limit the damage that they can do within any administration. 

© 2020 Craig R. Hersch. Originally published in the Sanibel Island Sun.