All About Estates

Adult Adoptions: A Method of Manipulating Inheritance Rights

This blog is by Natalie Rouse, Scotiatrust, Scotia Wealth Management.


Imagine this scenario: you are the beneficiary of a trust set up under your Mother’s estate. You are entitled to the net income of the trust during your lifetime, with the residue to your children at your death. You have a partner, but no children. The trust states if you do not have children there is a gift-over to your siblings, but you don’t get along with your siblings.  Your own estate will be modest, so you worry that your partner will not be properly provided for after your death. What do you do?

How about adopting your partner?  Although this option is unlikely to be your first thought, it is a method that has been used over the years, particularly in the United States, as a way to solve certain inheritance problems.

Generally, those adopted are considered to have the same legal rights as your bloodline. As such, in jurisdictions where adult adoptions are legal, adopting your partner (or another individual of your choosing) could effectively manipulate the distribution of trust funds. This could have an effect on a large portion of trusts, as children/issue are typically the primary choice of capital beneficiary. Another situation where this could ensure a certain individual inherits is in the case of an intestacy.

In many jurisdictions, an unmarried couple is not entitled to a division of each other’s property on intestacy. Adopting your partner could ensure that they would inherit (as if they were your child) in case you die without a valid Will. In addition, in some States same-sex marriage is still not legal. With a lack of options available, this strategy could be used as a substitute for marriage to ensure that your partner inherits under an intestacy. It goes without saying that you cannot adopt your legal spouse.

There are potential pitfalls with adult adoption.  Adoptions are incredibly difficult to reverse, and courts will only annul an adoption in very limited circumstances.  If the relationship falls apart, dissolution of the adoption may be impossible and a stranger inherits your family’s wealth.

Adopting another adult also interferes with the testator’s original estate plan. Individuals who were intended to benefit could be cut out. Going back to the example above, let’s say instead your siblings were only set to inherit as capital beneficiaries of the trust on your death (ie they did not receive other funds from your Mother’s estate).  Changing the distribution could completely strike out their interests. This is a situation that is begging for litigation.

The concept of adult adoptions  still has limited validity or application in Canada. With our aging population and the value of the pending wealth transfer, there may be increased interest in changing the flow of inherited funds.

An adult adoption should never be pursued without considering all of the potential consequences.  Seek independent legal advice and speak to an estate lawyer or  estate/financial planner about other options.

 

 

 

 

About Malcolm Burrows
Malcolm is a philanthropic advisor with 25+ years of experience. He is head, philanthropic advisory services at Scotia Wealth Management and founder of Aqueduct Foundation. malcolm.burrows@scotiawealth.com