When thinking through their estate plan and how they want their assets (money and property) managed after they pass away, most parents wish to treat their children equally, often out of a sense of fairness. However, sometimes being fair or doing what is right by your children may mean giving unequal 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 each child’s needs and circumstances.
- Not providing an outright inheritance is usually a good choice, as assets in a trust can be protected from the beneficiary’s 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
- choose to leave more money to your son who struggles to support his family on a modest teacher’s salary than to your daughter who makes seven figures, is married to a Wall Street tycoon, and has no children;
- opt to give a larger inheritance to a child who has dedicated themselves to volunteer work, the arts, religion, or public service;
- want to compensate a child who has given up part of their own life to care for you;
- wish to provide equally for all of your grandchildren, even if one child has more children than another;
- have a much younger child who needs care until adulthood, whereas your adult children are financially independent;
- have a special needs child who will need expensive and in-depth care for their entire lifetime; or
- 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 such as life insurance.
Distribution of Inheritances May Also Vary
You need to decide not only how much your children should receive but also when they will receive it, which may differ for each child. You can distribute inheritances in a lump sum or in installments; or you can keep an inheritance in a trust to be used for the children’s benefit at the trustee’s discretion without giving a child money outright. Consider factors such as the size of the potential inheritance, your children’s ages and family situations, 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 assets in a trust for their children. The trustee can make distributions for your children’s benefit based on guidelines you provide, while assets that stay in the trust have greater protection 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. Their sons will receive their inheritances in a lump sum after Frank and Jen die. However, their daughter is in and out of rehab and has been irresponsible with her own money. Fearing she will misuse her inheritance, Frank and Jen decide to keep her share in a trust so she can be provided for without the assets 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 into how your children will manage an inheritance.
- Consider whether your children should be your only beneficiaries. Perhaps you have additional goals such as providing for your grandchildren’s education, gifting property to other loved ones, providing for beloved pets, making charitable contributions, or setting up a family foundation or donor-advised fund.
You must take action to ensure that your children receive their inheritances in the way that is best for them as individuals. Our office can ensure that your estate plan and your children’s best interests match—and continue to match—as life unfolds. Call us at +1 937-589-4144 to schedule an appointment to create, or review, your estate plan.
