The Investment Scientist

Disability Planning Gone Wrong

Posted on: March 13, 2014

Many families face hard questions as they decide how to manage the needs of their disabled child after death.

[I got this cautionary tale from a newsletter sent to me by William Fralin, Esq and President of The Estate Planning & Elder Law Firm.,P.C.]

Often, during the parents’ lives a disabled child’s siblings can hold the mantle of responsibility, especially as the parents grow into their golden years. However, this harmonious family dynamic is likely to change after the death of the parents. While many caretaker siblings feel a sense of duty while their parents are alive, and express this sense of duty through the proper care and oversight of the disabled child, this sense of duty often ends when the parents are no longer in the picture. A generation ago, it was common to leave assets to the caretaker sibling in a family in order for that caretaker sibling to see that the needs of the disabled child are met. In fact, this technique was standard practice. However, with so many options available within the realm of modern estate planning it is not necessary, and somewhat risky, to give away assets directly under a moral obligation. One family in California recently experienced the downside of what can occur after the death of a parent.

The Kalfin family had two daughters: Diane was disabled and Jackie was a prominent businesswoman. At first it made perfect sense to believe that Jackie would be a trustworthy caretaker when their father died, but circumstances changed. Jackie, who received 4 million dollars outright, as opposed to in trust, decided that the money was entirely hers to do with as she wished – even though she had been told by her father to look after her disabled sister. Diane ended up suing Jackie, her own sister. The theory of her lawsuit, though, was unusual. Rather than arguing that Jackie had unduly influenced their father, she sued for breach of contract. Her position was that Jackie had promised to take care of her, and it would take about $2 million over her lifetime to do that. She also claimed that Jackie had taken advantage of both their father (a vulnerable adult) and Diane (a dependent adult).

In Kalfin vs. Kalfin, Diane eventually won a settlement of 1.4 million dollars. However, the family inheritance was destroyed by the legal process and the actions of the allegedly trustworthy sister. The California Court of Appeals upheld the lower verdict, ruling Jackie’s promise to take care of her sister was an enforceable contract.

There are many lessons from this story, but the foremost of these lessons is that disinheriting a child with disabilities and relying on another child to “take care of” them is not a reliable way to handle an estate. It might work, but there are real risks – and the cost and family disharmony resulting from litigation is almost certainly worse than what would be involved in simply setting up a trust for the child with a disability. Do you have a child with a disability? A complicated estate? Talk to the team at The Estate Planning & Elder Law Firm.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



You may also get his monthly newsletter, or join his Facebook page for regular wealth management insights. Michael's email is info[at]mzcap.com.

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