Shocking NYC murder highlights need for estate planning contingencies

Case serves as a reminder that advisers need to plan for events in which a beneficiary becomes unable to inherit.

A recent murder case is bringing so-called “slayer statutes” into the limelight and making the case for planning for contingencies in the event a named beneficiary can’t inherit.

Readers may have been following the lurid story involving the late Thomas Gilbert Sr., founder of Wainscott Capital Partners Fund, who was fatally shot in his Manhattan apartment on Jan. 4.

Mr. Gilbert’s son, Thomas Gilbert Jr., was arrested and charged with the murder soon after.

Now, reports are flying that the younger Mr. Gilbert may still get his cut of his dad’s $1.6 million nest egg, as the will splits the money between the elder Mr. Gilbert’s wife, daughter and son. This is due to the ambiguity around Mr. Gilbert’s death and whether it was intentional.

Enter the use of slayer statutes: state-based rules that determine what happens in an estate distribution following the slaying of a grantor by a beneficiary.

“This is intended to deter those who kill to get the money,” said Andrew M. Katzenstein, a partner in the personal planning department at Proskauer Rose. “These statutes are set up for the nefarious cases.”

In general, slayer statutes prevent beneficiaries from profiting from their own wrongdoing. When it comes to the distribution of the estate, the beneficiary who participated in the murder is disinherited and treated as if he or she died before the grantor.

Slayer statutes apply across the span of transfers: Beneficiaries who kill their grantors are unable to collect from an intestate inheritance — a scenario where one dies without a will — and they are barred from being named beneficiaries, according to Joanna L. Grossman, a law professor at Hofstra Law School. Non-probate transfers, such as life insurance and real estate transfers, also are blocked from going to that individual.

With insurance policies, carriers may take the case to court in an interpleader action to determine who receives the proceeds of any death benefits. In a situation where one spouse slays the other, the children may be in line to receive death benefits, said Charles Douglas, editor of the Journal of Estate and Tax Planning.

But there is a fine line between what’s considered murder in the context of the slayer statute.

Ms. Grossman notes that whether the statute kicks in depends on whether there is a criminal proceeding and a conviction of the alleged perpetrator. The probate court will base its decision on the findings of the criminal court: In the event of murder, the person is treated as a slayer under the statute.

Manslaughter is murkier, however: Voluntary manslaughter — where one person kills another in the heat of the moment and didn’t plan to do so — may bar the perpetrator from inheriting. Involuntary manslaughter — the unintentional killing of another — can also be iffy as to whether that results in disinheritance.

States will vary on their definition for the type of killing that would result in a disinheritance, as well as how broadly the statutes apply to asset transfers and whether the law applies to the descendants of the beneficiary who participated in the death, Ms. Grossman noted.

Probate court is the path of recourse for surviving beneficiaries. There, family members can push back against criminal court findings that would permit the killer to inherit. “The only time the beneficiary does anything is if the district attorney isn’t moving forward with the murder investigation, Mr. Katzenstein said. “Then the beneficiaries have to prove it in probate court.”

In such a scenario, the trustee of a trust or the executor of the will needs to be aware of how a case shapes up before the time comes for distribution.

Nobody drafts a will with the expectation that a loved one could ultimately harm them, but it helps for planners to think about events in which a beneficiary becomes unable to inherit.

There are more mundane reasons why a child may not be able to receive the money left behind by a parent. Perhaps the beneficiary passes away before the grantor, or maybe the beneficiary commits fraud or causes undue influence and can’t inherit as a result, according to Ms. Grossman.

“This is really just the normal lesson of planning for contingencies,” she said. “Assume the beneficiary won’t be able to take [the inheritance]. Think about where things should go.”