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Does your estate plan include your black sheep heir?

When parents have a substantial estate to leave to their heirs, they quite naturally want to structure their estate so that it isn't squandered. Sometimes this can be difficult when one or more of the children is financially irresponsible or somewhat of a "black sheep."

Parents' perceptions of their adult children's lifestyles are highly subjective, however. A child could be cast out of the family for something as banal as marrying someone of another race or faith. But other times, the rifts may run much deeper and be driven by unchecked substance abuse or a criminal lifestyle.

It's perfectly fine to refuse to support a loved one's self-destructive decisions, but sometimes parents feel bad about cutting a son or daughter off entirely. In those cases, parents may choose to set up a testamentary trust. There can be definite tax benefits with this option, which is another good reason to consider it.

These types of trusts are best administrated by an unrelated third party and not a sibling. Appointing one sibling to administer the trust for the other sets up a dynamic that can lead to resentment, arguments and even estrangement.

When there is disagreement between the parents over how to handle the estate, e.g., dad wants to disinherit the drug-addicted son, but mom does not, this will need to be addressed in the estate plan for both parents.

Depending on who predeceases whom, the estranged substance abuser may wind up with a windfall or with nothing at all. Another possibility may be to name the child as beneficiary of a small life insurance policy. Your estate planning professional can explain the pros and cons of each option so that you can make an informed choice.

Source: The Blunt Bean Counter, "Estate Planning for the Black Sheep Child," Mark Goodfield, accessed Nov. 18, 2016

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