( … with apologies to Lorne Michaels and SNL.)
Almost everyone has one. The Drunk Uncle. The cringeworthy relation. The unpredictable-to-the-point-of-irrationality family member. We love – or we try to love – our family; but this person pushes the limits.
Since they are a relative, they are an issue in your estate plan.
In California, we generally have the right to leave our money and property to whomever we want. Some states require you to ‘take care’ of certain people – a spouse, a minor child – not California. I could disinherit my two-year old for having a tantrum if I wanted to. So, with that much freedom, how can the Drunk Uncle become a problem?
It’s all about ‘standing,’ a legal concept that says whether you can bring a lawsuit to court or not. It’s also about someone being an ‘heir’ – another legal concept that determines who automatically inherits money or property in the absence of a will or a trust. The bottom line is that if someone is an heir, they have standing to sue, even if they have been disinherited! Don’t be confused: just because an heir can sue doesn’t mean they will succeed. But if there is an heir who is irrational or just plain greedy, even their failure in a suit can be spectacularly expensive.
A recent case from my office illustrates the point. A son of the deceased was left a motorhome and nothing else. When the deceased died, the son wanted the motorhome right away, but there is a waiting period. He became frustrated with the waiting period and began to claim that the successor Trustee had ‘abused’ or ‘damaged’ the motorhome, which was patently absurd since the motorhome was already very dilapidated before his father died and hadn’t been moved in years. Nevertheless, the son sued in every court he could find the door for. Soundly defeated at each and every turn, he was finally shut down last month with the last possible judge ruling in our favor. Plus, he didn’t get his motorhome – the storage yard sold it to cover their fees (we hear he’s suing them for ‘fraud’). Unfortunately, when the smoke cleared, this disgruntled heir cost the Trust far more money in time and court fees than the vehicle was worth.
You can’t always plan around these people. However, you can be more careful in planning with your own drunk uncle in mind. There are three main ways to attack this problem in a good estate plan.
First, you can just completely disinherit someone. In the case above with the motorhome, the deceased client felt guilty because he and his son had been at odds for years. Once upon a time, they had fun in the motorhome. Dad thought it would be a nice gesture. But it left an asset that required monthly maintenance fees to someone who had long proved their inability to make mature decisions with money; and his standing as a beneficiary allowed him room to make trouble. It would have been much better to simply disinherit him.
Alternatively, he could have simply been given a round sum of money – perhaps an amount about equal to what the motorhome was worth. Much less management for the Trustee – and that means less opportunity for the irrational beneficiary to claim bad behavior by the Trustee.
Finally, for the drunk uncle you just have to take care of, their inheritance can be parceled out over time – perhaps for life. The downside is, the Trustee is exposed to claims for bad behavior; but the upside is, the money is managed and used for real needs, not crazy shenanigans (or booze). This structure prevents someone with real needs from being able to throw money at bad decisions, that look like good decisions – if you’re a Drunk Uncle.