The financial aftermath of losing a loved one, such as a parent or a sibling, can be very fraught, especially when that loved one's estate plan includes a curveball or two. If you've inherited more or less money than you expected, you may have found yourself in the midst of a very awkward and potentially explosive family dilemma.
While many people's first reaction may be to strike an adversarial pose, there may be ways to resolve such a situation amicably—assuming everyone involved is willing to work together. But before that can be achieved, it may be helpful to try to understand your loved one’s reasoning for structuring their estate plan in this manner.
Why might an inheritance be divided unequally?
There are many reasons why someone might choose to leave different amounts of money to their various inheritors.
Your loved one may have had good intentions. Perhaps they recognized that some of their beneficiaries needed more financial help than others, and believed that by leaving unequal portions they were, in fact, being fairer than if they had divided things equally. In such a scenario, it would be best for them to have clearly communicated this before they passed on, to ensure the inheritors had an opportunity to process and, perhaps, express their displeasure with such an arrangement. Of course, it may be that your loved one elected to distribute their assets unequally to make a point or as the result of a falling out or estrangement.
That said, it's also possible that an inheritance has been divided up unequally due to an accident or mistake made when putting together the estate plan. Conflicts between wills and beneficiary designations, or a failure to keep documents up to date amid changing family circumstances (such as divorces, marriages, births, and deaths), may end up unintentionally excluding or short-changing certain family members in ways your loved one may have not intended. For the beneficiaries, it may be challenging to determine exactly what the actual intent was, or to come to a consensus on what should happen in order to resolve the resulting inequalities.
Taking the time to understand why the inheritance was distributed the way it was may help you come to terms with how things have played out. But what action you may take depends on what outcome you ultimately desire and what side of the equation you find yourself on.
If you feel your inheritance is unfairly small
If you received a smaller inheritance than you expected or that you feel you deserve, you may be feeling hurt that your loved one did not adequately consider your needs. You may be angry that your siblings or other family members have made out better than you and wondering whether there's anything you can do to make things right.
Of course, there are opportunities for recourse. You could contest the will and take your family members to court in an effort to get what you feel you are entitled to.
But the truth is, if you're looking to get something that you weren't given, your best bet is to remain on good terms with your family in the hopes that you can come to a private agreement that satisfies at least some of your needs. "If proper planning was done by the decedent, there's very little chance that contesting the will would be successful," says Christina Dawson, a vice president on the Advanced Planning team at Fidelity Investments. "If someone is going to ultimately succeed in getting more of the inheritance than they were granted initially, it's most likely going to be the result of a private agreement with the other beneficiaries, not because they were able to somehow have the instructions in the will or trust overturned."
Maybe you feel like you've got nothing to lose. Don't be so sure. Taking the matter to court can be expensive, and barring some significant, obvious issue, such as fraud, diminished capacity, or undue influence, it's highly unlikely that a court will act to invalidate your loved one’s wishes and intentions that they laid out in a will or trust. Furthermore, some wills and trusts may contain language that would automatically disinherit anyone who contests its terms, meaning that you could end up forfeiting what little you received in the first place.
"The emotional side of receiving a smaller inheritance than you anticipated is a huge factor," says Dawson, "but what's really important with regard to potentially addressing the situation and resolving those feelings is maintaining good relations with the rest of your family."
If you feel your inheritance is unfairly large
If you are the one who received the lion's share of an inheritance and are concerned about how the unequal division of assets may affect your relationships with your loved ones, there are a few options at your disposal.
First, you can explore "disclaiming" your inheritance. By formally refusing some or all of your inheritance in writing, you can remove yourself from the equation. Assets intended for you would then pass to the next beneficiaries identified in the estate-planning document, as if you had predeceased your loved one. You have no control over where the assets go, so it's important to confirm that disclaiming your inheritance would have the intended effect. You should work with an attorney when considering disclaiming your inheritance, because there are several steps that must be followed to properly disclaim, including a requirement that the disclaimer is filed within 9 months of your loved one’s death.
You could also work with an attorney to investigate whether your loved one granted you a power of appointment over your inheritance. "When someone drafts a will or establishes a trust, they can grant a power of appointment to a beneficiary that would allow that beneficiary to override the default instructions that were put in place," says Dawson. "If a beneficiary was given this power, they could modify those instructions to provide for a more agreeable distribution of inherited assets."
If these avenues aren't available to you, you can always directly gift inherited assets to another family member. It's important, however, to understand how these options could affect your taxes and your ability to protect your own wealth in the future. "When you transfer some of your inheritance to someone else, whether it's a family member or not, that's considered a gift that could be subject to both state or federal gift tax," says Dawson.
For smaller sums of money, you can make use of your annual gift tax exclusion. Each calendar year, you are entitled to gift a certain amount of money ($17,000 in 2023) to another individual without federal gift tax liability. Assuming you're able to come to an agreement with your family members and they're willing to be patient, you could also use the annual gift tax exclusion to pay out a larger sum of money in installments over a few years.
For larger sums of money, or if you want (or need) to settle things more quickly, you could also utilize your lifetime federal gift tax exemption. In 2023, the lifetime gift tax exemption allows you to gift up to $12.92 million without incurring a federal gift tax liability. Note, however, that each large gift reduces your remaining lifetime federal gift tax exemption, and you will need to file a federal gift tax return (IRS Form 709) to report the gift to the IRS. This only applies to gifts that exceed the annual gift exclusion, so you won't have to tap into your lifetime gift exclusion until you gift more than the annual exclusion amount to an individual.
While this may seem like an expedient option, using your lifetime federal gift tax exemption to make gifts during your lifetime will reduce the amount you are able to utilize at death when passing your estate on to your heirs (in other words, this exemption is used for both federal gift tax and estate-tax purposes). For example, imagine you gifted $117,000 to a sibling in 2023. The amount that exceeds the $17,000 annual gift exclusion ($100,000) would reduce your lifetime exemption from $12.92 million to $12.82 million. If you don't expect to have an estate with a value that exceeds that amount at death, it may be a moot point, but it's always important to be aware of the long-term implications of a short-term remedy. Depending on the state you live in, there might also be state-level gift and estate tax considerations. As such, it is important to consult with a tax advisor or an attorney prior to gifting a large amount.
Think hard about what you want to walk away with
Letting your emotions govern your decision-making could lead you astray and leave you in a worse situation than when you began. Before you react in a way that might be counterproductive, take a step back and really consider what it is you want to achieve and whether there is a constructive way to bring that outcome to fruition. Consider also whether or not what you think you want is truly worth the costs, both emotional and financial, you may incur by pursuing it. Whatever you decide, remember that it's important to consult with a financial professional and perhaps a legal advisor to help ensure it's aligned to your broader wealth goals.