TREATING YOUR CHILDREN FAIRLY, NOT EQUALLY IN YOUR ESTATE PLANNING

coryBy Cory Howes

In my work as an estate planning attorney, I’ve observed that most parents want to treat their children fairly with regard to their estate planning. Many parents assume that fair treatment means equal treatment; thus, children should receive equal inheritances. Treating children fairly, however, doesn’t necessarily mean treating them equally in terms of asset distribution when you consider your circumstances.

It’s important to think through the actual reality of your financial situation, as well as those of your individual children, when executing and updating your estate plan. For example, you may want to provide more in your estate for a child who struggles to support his family on a modest income than to another child who is financially successful and has decided not to have children. Also, many people believe that it’s fair to provide extra compensation to a child who has given up part of his/her own life to help with a parent’s care—in multi-sibling families, it’s much more common to see one or two children stepping up to care for their parents, versus all of the children (as with some children living closer geographically to the parents than others, or just feeling more responsible for their parents’ care).

Also, younger children will certainly need care longer than grown children; sometimes, the deaths of parents occur when some children are adults and well into their professional careers, while other children are still minors and in the home. Some children may have special medical needs that will require greater care for their entire lives.

Some circumstances can be business-oriented. For example, one child may join the family business, while others do not. You may think it’s fair, in this situation, to reward the child who has invested his or her life into the business with a greater share than those who have pursued other interests. The non-participating siblings can be left with other assets entirely, such as insurance and real estate, versus taping an asset more related to the participating child.

Here’s yet another complicating factor to consider: you not only need to decide how much each child should receive, but also when they receive it. These stipulations can and perhaps should be different by circumstance, since inheritances can be distributed in lump sum or partially over time. Parents should consider the amount of the inheritance, the ages and family situations of each child, as well as how each child handles money and each child’s needs. For example, older children who have shown responsibility with their own money may be perfectly fine with inheriting a larger, lump sum of money, while an adult child who is struggling to buy a home may appreciate at least a partial immediate distribution, with the rest later. Younger children may benefit from inheriting money in installments, allowing them to adjust to their new wealth and stay responsible with money.

Trusts are great tools for managing money for children, especially when children have different needs based on their life circumstances and values. Assets held in trust may be protected from irresponsible spending, creditors (bankruptcy and divorce), and predators (those with undue influence on a child). Trustees are able to distribute money periodically, in alignment with guidelines provided in the trust document. This can be a great solution with children who are either irresponsible or have dependency issues. Furthermore, trusts can remedy concerns regarding current or future marriages ending in divorce, as parents want to protect assets earmarked for their children from vulnerability during divorce settlements. Finally, trusts can shield a child’s inheritance from lawsuits and creditors.

If you have concerns about how your children will save, use wisely, or waste their inheritances, you may want to consider partial gifts while you’re still living as an experiment to see how they will perform with inherited assets after you pass away. If they choose to save the money, or buy a home or send your grandchildren to college with your gift, you’ll also have a very heartwarming event to enjoy during your life. In addition, gifts made during your lifetime will allow you to ease the burden of a future estate tax.

While many parents want to leave their children enough that they can do anything they choose, many want to ensure they don’t leave their children so much money that they do nothing at all. Remember that an important aspect of treating your children fairly may involve not giving them all of your money. If you have sizeable assets, you can set up trusts for your grandchildren and future generations. Even still, you can also give gifts or set up trusts that benefit your favorite charitable and religious organizations.

For more information on the Forrest Firm’s estate planning services, email me today to set up a consultation.