When planning their estate, most parents express the desire to treat their children equally out of a sense of fairness. However, sometimes being fair or doing what’s right by your children may not mean equal or the same inheritances.
The Key Takeaways:
Treating children fairly does not always mean equal inheritances.
How and when each child receives an inheritance may need to be customized to your children as individuals.
Not providing an outright inheritance is usually a good choice, as assets that stay in a trust are protected from irresponsible spending, divorce, predators, and creditors.
When Unequal Inheritances May Be Fair:
There are often special circumstances to consider before you divide the family pie into equal parts. For example:
You may want to leave more assets to your son who struggles to support his family on a modest teacher’s salary than to your daughter who makes six figures, married a Wall Street tycoon, and has chosen not to have children.
You may want to give a larger inheritance to a child who has dedicated himself to volunteer work, the arts, religion, or public service.
You may want to compensate a child who has given up part of his own life to care for you.
You may want to provide for grandchildren even if one child has more children than another.
You may have a much younger child who needs care into adulthood whereas your adult children are financially independent.
You may have a special needs child who will need care for his entire lifetime.
You may have a child who has contributed to the family business and other children who have not. Instead of making them all equal owners in the business, you may want to leave the business to the one who has contributed and shown an interest, and then provide for the others with other assets and/or life insurance.
Distribution of Inheritances May Also Vary:
Not only do you need to decide how much your children should receive, but also when they will receive it—and that can be different for each child. You can distribute inheritances in one lump sum or in installments; or, you can keep an inheritance in a trust. Consider factors such as the size of the potential inheritance, your children’s ages and family situation, how they have handled their own money, and how much they need your financial gift.
What You Should Know:
Many parents do not provide outright inheritances, preferring to keep the assets in a trust for their children. The trustee can make distributions for your children’s benefit based on guidelines you provide, but assets that stay in the trust are protected from irresponsible spending, creditors (bankruptcy, lawsuits, and divorce), and predators (those with undue influence on your child).
Example: Frank and Jen have two sons who are stable and responsible with their own money; they will receive their inheritances in a lump sum after their parents both have died. However, their daughter is in and out of rehab and has been irresponsible with her own money. Fearing she will misuse her inheritance, they decided to keep her share in a trust so it can provide for her without being completely available to her.
Actions to Consider:
If you can afford it, consider giving your children some of their inheritance now. Not only will you have the opportunity to witness them enjoying your gift, but it will also provide insight as to how your children will handle an inheritance.
Consider whether your children should inherit everything you own. Perhaps you have additional goals such as providing for your grandchildren’s education, gifting other loved ones, providing for beloved pets, making charitable contributions, or setting up a family foundation or donor-advised fund.
In summation, It is essential that you take action to ensure your children receive their inheritances as is best for them as individuals. Our office can ensure your estate plan and your children’s best interests match…and continue to match as life unfolds.