You’ve done well. You are ready to set the next generation up for success with the fruits of your labor. One way you are doing that is through your estate plan – what you want to happen when you die.
However, for some reason, you have decided that each of your four children will not split your estate equally. Maybe half the assets are tied up in the company business and only one of your children is interested in the business. Since you created that baby, you want it to live beyond your life. Should you vest the interested child with the entire business?
Perhaps one of your children had a mis-spent youth – did drugs and ruined their mind. You are pretty sure that the siblings won’t be able to or desire to care for the black sheep. Yet you feel responsible and don’t want to force the government or other charities to care for that ruined child. Should you provide more for this child – the one who didn’t live up to your expectations? How can you explain that decision to the other three hard working, healthy and productive children?
Perhaps one of your children has lived with you, mooched off you actually, for years. Should that child get an equal amount when you die? After all, s/he did keep you company (sort of).
What the experts recommend.
Expert sources all agree that you have the right to do whatever they want to with your estate. If you want to leave unequal distributions, that is your business. However, they also agree that leaving unequal distributions can lead to more legal challenges to your estate’s distribution as well as to more anguish and conflict between your heirs.
If you do want to leave unequal distributions consider these suggestions:
- Keep in mind that your heirs may consider how you distribute to be their final report card. Sometimes heirs think that money and assets equal love and admiration. If that is not the case, make it known!
- Freely and openly discuss why you are doing so with all involved parties. As a parent, you can address any issues that arise from those discussions. Understanding why you are doing this goes a long way to dispelling made up reasons – such as ‘you always loved Johnny better’.
- If you can’t discuss with your family before you die, consider leaving a written document which explains your rationale. Include your intent and your hopes that your heirs accept the situation and don’t hold grudges against one another due to it.
- If you think one child needs more support than the others, but are afraid to leave unequal inheritances, consider distributing only 80% of your property and putting the other 20% in a trust to care for any child that ends up needing help.
- Remember that leaving equal amounts of assets may not really be fair. You may have provided a great deal of support during your life to one of your heirs, and want to even out the scorecard when you die.
- Consider – if you can – giving at least a portion of your estate away while you live. You might avoid some taxes, get to see it enjoyed by your would be heir and deal with any jealously that surfaces yourself instead of letting your descendents duke it out.
- If one of your children is currently more involved in the family business than others, and has put a lot of time in on it, think about trying to involve the other heirs in a part of the business as well. In Preparing Heirs, Williams & Preisser state that this will often force the non-participating heir to realize what sweat equity the involved child has been putting into the business. That way the non-participating heir should realize that what you want to do with the business may not be equal, but is fair.
- Another suggestion on passing the family business is to provide shares to all heirs, but provide control and extra income to the heir that is involved in running it.
The experts also indicate that often heirs squabble more over the real assets – such as the antique family furniture or a souvenir from a beloved family vacation than they do over money. Suggestions for avoiding these types of squabbles include:
- Giving items away while you live.
- Designating that a specific item will go to a specific person in a letter of instruction.
- Setting up a process for heirs to use to decide who gets what – such as
- Letting the executor decide
- Forcing the disputed object to be sold and the money distribute
- Setting up a round robin selection where each heir picks one thing, then the next heir picks one thing until all is gone
- Putting all the stuff up for auction and letting heirs bid on it first
- Or any of a number of other processes.
An example of not dividing equally.
My paternal Grandfather survived my Grandmother. They were farmers most of their lives. When he died (at age 95) he ended up with 200 acres of prime farmland, a house with some modest furnishing and a very small bank account. He was survived by multiple nieces and nephews, a son, four grandchildren and multiple great-grandchildren.
Without indication, without discussion, he made a will that left the entire farm to one of the grandchildren. He left a few dollars and a car to the other grandchildren and the contents of the house to his child. The acreage was without a doubt the most valuable piece of the estate. Did the heirs squabble? No. The grandson who received the acreage had spent many summers on the farm, helping the grandparents with the yearly harvest. He was universally supported by family members in receiving the acreage. He kept it and uses it to this day to hunt.
The lesson here is – if your family members will all understand why you bequeathed a certain way, then perhaps you don’t need to make a big deal of it and explain it while you live or leave a letter of instruction explaining it for after you die. A lot of families may not be so universally understanding however – so I think you should consider preparing them.
An example of dividing equally (or at least intending to do so).
My parents have both passed away. Throughout their lives, they were adamant about providing equal support to both of their children. Birthdays, Christmas’s, college funds, graduation gifts, wedding gifts – were financially the same to both kids.
Before passing, Dad indicated that my family would be favored a bit – due to the fact that we had the only grandkids and he and Mom weregoing to leave money directly to the grandkids.
It came to pass that my brother moved back in with our parents and lived with them for years, some of the years without providing any financial re-reimbursement for living expenses to my parents. He was able to keep Mom company for the decade following Dad’s death. Since I didn’t want to have to boot him out of the house he had lived in for years (or hit him up for half the house’s worth) when Mom died, I suggested that she put a transfer on death clause on the house – so it would go directly to him. She did that, but didn’t re-adjust any of the other provisions in the trust.
The lesson here is that my parents original intent – to divide the assets equally between my brother and I, but also to provide a small inheritance to their grandchildren – was not really met. You have to be diligent in keeping your estate plans up to date so that your intentions are realized even when things change.
What we are doing.
We currently plan to leave our assets more or less equally to each of our children. We also plan to leave direct bequests to grandchildren as well – so
I guess whoever has the most children will really get a bigger part of our estate.
However, we did work hard for what we have and want to see it used to provide a foundation of opportunity for future generations. If we see that being threatened by a future heir, we might change our minds!
We have already started discussing our estate plan with our adult sons and their wives and plan to continue doing so. Our goal is to help ensure they can handle an inheritance. As part of that we have, and will continue (at least in the years we are able) to make an annual tax free gift of money to them as well as to pass along objects with family history attached (if they are interested in accepting those).
Did you inherit less than or more than a sibling? How did your parents handle it? Should parents leave unequal distributions?
Wills: How to Give One Child Less by Rachel Emma Silverman Wall Street Journal Weekend Investor September 10, 2011
Overcoming the Inheritance Taboo – Steven J. Hendlin
Estate Planning for the Healthy, Wealthy Family by Stanley D. Neeleman, J.D.; Carla B. Garrity, PH.D. And Mitchell A. Baris, PH.D.
Preparing Heirs by Roy Williams & Vic preisser