Trusts are generally created when one person or firm manages assets for the benefit of…
Equitable distribution of assets among children is an obvious and correct decision in many situations. Yet, in some families, each child receiving the same inheritance can be inappropriate, deplete the estate’s assets due to ensuing litigation, or cause other family issues after you are gone.
While the answers depend on your family circumstances and concerns, be aware of several known scenarios to watch out for as you make your decisions. Without a will, there are sure to be problems between family and loved ones. You may find it difficult to sort out, but creating a will is the responsible thing to do.
Equal? Or Fair and Equitable?
Your estate planning attorney will likely point out that there is a difference between leaving an equal inheritance, where each child receives precisely the same amount, and an equitable inheritance, where you determine what is fair for each child, given their circumstances. The obligation is only to yourself as it is your money and your decision. Should circumstances change, you can amend your will.
Special Needs Children
The first and most obvious inheritance issue happens if the family has a special needs child. After minor guardianship, if your adult special needs child can’t care for themselves, you will want to create a special needs trust. Depending on your financial situation, this trust can take up most of your estate to meet basic living expenses and funds for ongoing medical needs. Siblings will often understand and not be offended by receiving less money. However, it is important to let all children know the arrangements.
This third-party-funded special needs trust can also use life insurance policies to preserve a larger aggregate of the parents’ assets for the rest of the children. The special needs child must receive the necessary financial assistance for functional needs without the risk of losing existing or future government benefits. If the special needs child passes, the leftover trust monies can go to the remaining siblings as secondary beneficiaries.
Another situation that may inspire equitable but not equal inheritance is when one of your adult children acts as your caregiver. Often, this family caregiver is uncompensated for their efforts, works fewer hours in their job, or can’t further their career to fund their social security benefits for their retirement. This situation can have disastrous consequences for the caregiver’s future. Therefore, providing more inheritance to this child can compensate for their family support efforts.
Lifestyles and Financial Circumstances
Your adult children may experience different financial needs during your lifetime. A child who marries and provides grandchildren may need your help funding a down payment on a house for their growing family. If this is not a documented loan with the expectation of repayment, it is wise to consider reducing this child’s inheritance proportional to the financial aid provided earlier. Weddings, grad school, and other life events of your adult children may have created a substantial inequity among the siblings that you want to offset in your will. You can easily address the situation by reducing inheritable cash amounts to the child or children who have already received substantial financial help while you are alive.
Suppose you are a blended family comprised of biological and stepchildren. In that case, managing the expectations of non-biological children who may receive less than natural-born children is a crucial conversation. Honest communication between the parents and writing wills that complement one another brings a sense of fairness to inheritable assets. This will go a long way to avoiding a possible lawsuit. What one stepchild loses in one will, they may gain in their biological parent’s will.
Be of Sound Mind and Free from Undue Influence
If you divide your assets unequally among your children, know that you may be putting your estate plans and children at risk of litigation. Heirs can sue to contest a will, but you can mitigate the likelihood with careful estate planning. An estate planning attorney will be familiar with family dynamics if one inheritor feels slighted. Drafting your will while you are of sound mind and without undue influence from one of your children is a good start. If your other children believe or think they can prove in court that you were subject to another’s manipulative tactics while writing your will, they will likely sue. Do your estate planning earlier in life when it is clear to everyone you know what you want.
Another legal challenge to your will can be for lack of testamentary capacity. This term means you were unaware or did not understand what you were doing when creating or changing your will. Lack of testamentary capacity may be due to mental illness or a physical condition. Always ensure your will is properly drafted and witnessed by an estate planning attorney to help avoid possible challenges to your will.
Some states permit a no-contest clause combined with at least a nominal gift that can create an incentive for family members not to challenge your will and any estate trusts. The language in the will (or trust) essentially states that any inheritor who litigates the document as written will forfeit any bequests. While this is not the best option, it may help keep your will intact. The enforceability of these clauses will vary by state, so be sure to talk about it with your lawyer.
A few tips that can help avoid challenges to your will include:
- Having your medical doctor witness your signature to your will to invalidate lack of capacity claims
- Use a trust to provide structure and limitations for children who may not responsibly manage their inheritance
- Exclude all children from your estate planning process and will writing to invalidate claims of undue influence
- Discuss your will with every one of your children to explain your reasoning and avoid surprises
Ultimately this is your money to divide as you wish, and you have every right to do so. However, if your inheritors perceive inequality, they will likely explore legal options to remedy their inheritance. Weighing your children’s temperaments and their relationships with each other will provide insight into whether leaving unequal inheritance poses a risk to your will. Sometimes unequal inheritance may not be worth what you are trying to accomplish. Evaluate your unique family circumstances and financial situation with your estate planning attorney. Doing the work upfront can mitigate issues after you are gone, leaving your family happy and intact.