How Can You Protect Your Inheritance from a Spendthrift Sibling?

If you've always been the responsible member of your family, you may be concerned as you watch your sibling or his or her spouse repeatedly request money from your parents with little to no intent to repay these loans. You might be concerned about your parents' ability to provide for their own care in old age, or whether there will be anything left of a family trust or inheritance once your sibling finishes siphoning all the funds he or she can. Is there anything you can do to help safeguard your parents' financial interests? How can you help preserve your own potential inheritance? Here are some advances on an inheritance and what you can do to help protect your parents and yourself from financially troubled family members.

When are advances on an inheritance permitted?

If your parents are unwilling to stop helping your sibling financially, but also wish to be fair to you after they pass away, they may opt to declare future unrepaid loans as an advance on your sibling's inheritance, rather than simply a loan. These advances are subtracted from your sibling's total share of your parents' estate. For example, if your parents provide $50,000 worth of assistance to two of your siblings during adulthood and then die, leaving a $150,000 estate, you'll receive $50,000 off the top -- the remaining $100,000 will then be divided equally among you and your two siblings.

Although it helps these changes to be officially codified in a last will and testament, you'd have a strong argument toward receiving a greater share of your parents' estate simply by showing canceled checks with "inheritance advance" written in the memo line. As long as you have the documentation to demonstrate your parents' intent, you'll have the upper hand.

What else can your parents do to help avoid making future loans?

In some situations, your parents simply may feel unable to say no to requests for help from their children, but would prefer that these requests stop coming. If this is the case, your parents may be able to issue a 1099-C (or cancellation of debt) form to one or more of your siblings after they've failed to repay the most recent loan. This form renders the unrepaid loan as taxable income to your siblings, and may help discourage future loan requests -- particularly once tax time rolls around after the first 1099-C is issued and your sibling realizes the ultimate cost of failing to repay borrowed money. Talk to an attorney like Beck Law Office PC LLO for assistance.