So for all of you that say this is in no way the right thing to do, that the older kids will see their parents lying, that Disney's overall profit will be hard hit, that rules are rules (and you all have points, even though in this case I don't agree), what is your advice if the OP cannot make other arrangments? Do you think she and her husband should just call off the trip? Maybe leave one of the kids home?
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No, I think they should rebook into a room that will hold them per Disney's policy. The OP knows now that they don't fit into the room they have booked. She has time to fix the mistake.
And as someone else pointed out, the child will then be age 2 for everything! So we are not just talking about an extra child in a room. We are talking about them not paying for meals, or for park passes. So that is quite a lot of money Disney will loose by this "honest" mistake. Knowing this ahead of time, how is it not stealing?
Me, I would spend way too much time worrying about getting caught for my vacation to be enjoyable. In my mind were the OP to not at least call Disney and ask what she should do is about the same as a parent turning a blind eye to the candy stuck in their child's pocket in a store. Maybe you didn't see them take the candy, and if you saw them eat it later you may not know it was stolen. But if you know about it while you are in the store you should pay for it. If you don't, it is no longer an accident or a mistake. Now you are just as guilty as your child is. And what the OP would be doing would cost Disney much more than a candy bar.