Most people know what a last will and testament is. A Will is a document that states who is to receive your assets after you die. For instance, “I give my entire estate to my four children equally” is an example of a testamentary devise contained in a Will.
What many people do not understand is that beneficiaries of an estate are free to change the terms of the Will if they so choose. For instance, perhaps Mr. Jones dies and disinherits one of his children. Maybe Mr. Jones did not have a good relationship with that particular child and he wanted to disinherit him.
Mr. Jones is free to disinherit anyone he wants to disinherit. The only person you cannot effectively disinherit is a spouse because a spouse can always assert a claim against the estate of her deceased husband. A disinherited spouse could be entitled to one-third of her deceased spouse’s estate, if the deceased spouse disinherited her.
Other than a spouse, though, a person is free to disinherit anyone he wishes. He doesn’t have to leave the person he is disinheriting a token amount to make it effective. He can simply leave the person—be him a child, a brother, a cousin—nothing.
So, assume that Mr. Jones disinherits his wayward son with whom he had little to no relationship. After Mr. Jones dies, his other children are free to get together and effectively say “We know that dad and you didn’t get along, but we want to enter an agreement whereby we give you an equal share of dad’s estate.”
Such an agreement would be perfectly legal and binding. Our state has a specific statute that permits the beneficiaries of an estate to agree to a different distribution of the estate than the one specified in the decedent’s Will.
With that said and notwithstanding the legally binding effect of an agreement entered into between beneficiaries of an estate, the agreement that the beneficiaries enter cannot change the tax liability of the estate. Our state has two death taxes, an estate tax and an inheritance tax.
The inheritance tax is primarily assessed based upon the relationship of the beneficiary to the decedent. A beneficiary who is the spouse, children, or grandchild of the decedent does not pay inheritance tax. A beneficiary of more distant relation, such as a sibling or cousin, or a beneficiary of no relationship to the decedent at all, such as a friend, will have his devise subject to the New Jersey inheritance tax.
So, assume that Mr. Smith leaves his estate to his four children but also leaves $30,000 to his favorite son-in-law, Joe, who is married to one of Mr. Smith’s daughters. After Mr. Smith dies, his family and Joe learn that Joe’s share of the estate is subject to New Jersey inheritance tax.
If the children and Joe entered an agreement to change the terms of Mr. Smith’s Will in order to leave the $30,000 that Mr. Smith devised to Joe to Joe’s wife, the daughter of Mr. Smith, in order to eliminate the inheritance tax (the daughter’s devise is not subject to inheritance tax), their agreement will not change the tax that would have been owed.
The beneficiaries are free to agree to a change the terms of Mr. Smith’s Will, but they cannot alter the inheritance tax that would be owed based upon the terms of Mr. Smith’s Will. In this example, Joe could disclaim his inheritance, a disclaimer is a document that Joe signs saying he does not want the inheritance Mr. Smith left to him.
Once Joe disclaims the inheritance, the $30,000 he would have received, would go back into Mr. Smith’s estate and would be divided even amongst his children. His children would then be free to give Joe the $30,000 as a gift, though they would not be legally obligated to make that gift.
The bottom line is, a person’s last will and testament is not a binding document in the sense that the beneficiaries are always free to alter the terms of the Will. The beneficiaries cannot, however, alter the obligations of the estate, such as its obligation to pay death taxes.