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Monday, March 4, 2019

Step-Sister Swindles Siblings Out Of Inheritance

A recent article in the MarketWatch advice column caught our eye because it is a scenario we have seen played out far too many times. A blended family is at one another’s throats because one sibling took advantage of her step-father’s poor estate planning in order to benefit her own family. Family disputes over estate planning and inheritances are incredibly common, but largely preventable if you work with an experienced estate planning attorney

Distraught” wrote to “the Moneyist” seeking advice because he recently discovered his step-sister had exploited a loophole in his father’s estate and swindled her three step-siblings out of a million dollar inheritance they had been counting on for the past 20 years. 

The advice seeker claims, “Before my dad passed [in 2001], we had a frank and clear discussion about his estate. He had worked and invested and had more than $1 million in his estate, which he clearly stated to me was to be split four equal ways upon the death of his wife.”

Years pass, and the letter-writer’s step-mother is taken ill. The letter writer visits her home, and they look through lots of photo albums, one of which has some financial documents shoved into it. The documents reveal that his step-sister borrowed $617,000 from the father’s estate to purchase a $750,000 life insurance policy on her mother. And surprise, surprise, the proceeds of that policy will flow into a trust that distributes 75% of the proceeds to the step-sister. The three other siblings are expected to split the remaining 25%. 

The step-sister was able to work this financial sleight-of-hand by exploiting a loophole in the father’s estate plan. It appears the father left the bulk of his estate in a trust set up to provide for his wife. That’s normally a pretty safe thing to do, but in this case the trust’s terms allowed someone to dip into the principle if the wife’s income fell below a certain level. 

Obviously we don’t know all the details of what happened, and we are only hearing one side of the story, but this sounds like a classic case of sloppy estate planning. 

One sibling should not be able to cheat his or her brothers and sisters out of their inheritance. Nor should a surviving spouse be able to favor one child over the others if that is not what the other spouse intended. Careful estate planning ensures that things like this cannot happen. For example, an independent trustee could put a stop to shenanigans like this, or at least alert other beneficiaries to what was happening. 

That fact that the letter writer was dealing with a duplicitous step-sibling and step-mother makes this sound like they were evil characters in a Disney film, but this isn’t something that only happens in blended families. Greed is thicker than blood or water, and will always find a way. 


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