Disinherit the black sheep

Your son fell in with a bad crowd in his late teens. Every attempt to set him straight failed, and for the past 20 years he’s been in and out of jail for drug offenses and petty crimes. You’re so upset, you’ve decided to disinherit him.

How you do it depends on the province where you live, because inheritance rules vary. Here’s how Alberta, B.C. and Ontario differ.

Legal framework

In Alberta, leaving adult independent children out of your will disinherits them. “They have no right to dispute under dependant’s relief legislation,” says Floyd Gradley, an estate and trust lawyer with Mackenzie Investments.

The only way they could mount a challenge is to argue that you were under duress, unduly influenced or didn’t have the necessary mental capacity when the will was made. Gradley says that proving these claims is quite difficult.

In contrast, B.C. law protects spouses and minor children, as well as all biological and adopted children. In both B.C. and Alberta, a will must be in place for an heir to issue a challenge, and only estate assets can be pursued—proceeds from insurance and other policies where beneficiaries are named remain outside the estate.

Ontario’s legislation protects spouses and minor children, as well as dependent adult children, siblings and parents. “As in Alberta, it doesn’t include independent adult children. So it’s quite easy for Ontario residents to disinherit a black sheep,” Gradley notes.

Ontario courts can draw from assets given away during your lifetime, as well as assets that distribute outside the estate—including proceeds from life insurance—for which beneficiaries are designated.

“The court can go to the policy’s beneficiary and order him or her to return part or all of its proceeds to the estate, which will then be reallocated to the claimant,” Gradley explains.

And unlike those of Alberta and B.C., Ontario’s rules apply even if someone dies without a will. “Protected individuals can still apply for reallocation of the deceased’s assets if they feel the intestate allocation is unfair,” he notes.

Disinheriting strategies for B.C. residents

Despite the broad coverage of B.C.’s legislation, you have a few options for disinheriting an independent adult child.

One is alter ego trusts, which require you be 65 years old and reside in Canada. The trust holds your assets, but as the trustee, you retain control.

Gradley explains that because you don’t own the assets, they don’t fall under your will. Beneficiaries receive the trust assets upon your death, and there’s nothing the black sheep can do because his only legal tool is to contest the will.

Setting up an alter ego trust costs between $3,000 to $10,000, depending on its complexity.

Gradley suggests leaving only minor assets in the estate, like CPP benefits or an old car.

“Then put together a will that disinherits all the people [you favour] and makes the black sheep the sole beneficiary. She can’t legally challenge it because she’s technically inheriting the entire estate. By the time taxes are covered, there’ll be little or nothing left.”

Joint tenancy, although complex, is also effective. “The asset is jointly held with the person or people [you want] to pass it to upon death. It’s not in the estate, so the black sheep can’t get at it through a legal challenge,” says Gradley.

A third strategy is to leave money using beneficiary designations. “If [you have] a segregated fund, the beneficiary would receive it upon death, and the funds couldn’t be targeted by an adult independent child in B.C.,” says Gradley.

Acting out of spite

What if you plan a $50 inheritance, while setting aside hundreds of thousands for other children?

While this doesn’t give the black sheep a legitimate opening to press for more in court, being malicious can backfire by inciting aggressive action.

Robert Mendenhall, vice president of tax and estate planning at Richardson GMP in Edmonton, Alta., advises you “push the gift amount for the black sheep as close to the expected amount as possible, while suggesting conditions or controls as a trade-off. It acknowledges the person as a family member and likely prevents pushback.”

If you insist on disinheriting the black sheep, draft a memorandum explaining your reasons. This can pre-empt the black sheep’s attempt to claim you were under undue influence or duress when you drafted your will.

But Mendenhall says it’s best to communicate with your heirs and executor in advance. “When someone’s considering a distribution that’s out of the norm, it’s important to get everyone united behind the plan, if possible.”