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Tuesday, January 15, 2013

Should my inheritance be reduced by what my daughter owed my parents?

The complexities involved in distributing an estate continue to challenge both executors and beneficiaries. Even a simple statement such as "divide my estate equally among my children" can end up being complicated by the very real circumstances of our lives.

Recently I blogged about the fact that beneficiaries are often dismayed to find out that the "help" they received from their parents over the years in fact decreases the amount they will inherit. The following note was received from a reader who is in that situation, but with an added wrinkle. Here is the question:

"My father recently passed away. His will states that his estate is divided between 5 children and his common in law wife. I have been told that I will not recieve my full inheritance because I had a loan back in 1995 which my Mom cosigned on and when I moved away she made the payments. She passed away in 1998 so my Dad had to pay off the loan and also that my daughter owed Mom some money so that comes out of my share. The grandchildren are not even in my Dad's will and I don't see why I have to pay for her."

Unfortunately, the money you received by way of that 1995 loan is considered by law to be an advance on your inheritance. This is the case unless the will specifically tells your executor to forgive the loan, or unless you've paid it  back. The executor doesn't have any choice, as he is bound by law to reduce your inheritance by the amount you have already received.

Now the loan to the grand-daughter is another matter. I'm not at all convinced that the loan has anything to do with you. For one thing, the money was owed to your mother and this is your father's estate. For another thing, you are not your daughter. The presumption of advancement which applies to children receiving a gift does not apply to grandchildren. To me, it sounds like a real stretch to try to apply that loan to you.

However, I haven't seen the will and I don't know anything about the terms of the loan to your daughter, so I suppose there could be facts that support this position. For example, the money could actually have been given to you, and you gave it to your daughter.

Unfortunately, families almost never document this kind of arrangement because they don't want to insult anyone. This often results in keeping the feelings intact at the time, but causing much greater hurt down the line.

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