Fair doesn’t mean equal in estate planning

When planning an
estate, most often parents distribute their assets equally among their
children. If it’s their goal to be fair to each child, it does not
necessarily mean leaving your assets equally to each child. Sometimes
special circumstances need to be taken into consideration.

If
parents have done lifetime gifting to one child, but not another, they
may or may not want that taken into consideration in their estate
planning. Some parents want the lifetime gift to be extra if child
needed the help, as compared to the other more financially independent
children. If so, nothing needs to be reflected differently in their
estate plan, and the assets can be inherited equally by their children.

Those
parents that want to be completely equal all around, but be able and
willing to help out those that need it now, should do some additional
planning. If their estate plan leaves all assets to the children
equally, they may want the child they helped to sign a promissory note,
promising to pay back the amount borrowed. This way, if the debt isn’t
paid back before the parents die, it likely will be payable to the
parent’s estate and come out of that child’s share. This way, the estate
plan does not need to be amended each time the parents lend money to a
child or a child makes payments back to the parents. Instead, a record
tracking the payments made, if any, should be sufficient. Alternatively,
the parents can include provisions in their estate plan to make up for
the difference. Another option would be for the parents to do matching
lifetime gifts to the other children.

If a child chooses to assist
in caring for an aging parent, possibly moving in with or allowing the
parent to move in with them, the parent may choose to compensate the
child by leaving him or her a larger inheritance.

Sometimes
parents want to provide a larger share to the child with a lower income
and/or a larger family to support, especially if the other children are
more financially established. In their estate plan, they provide for a
larger share to go to the children, or even grandchildren, that need it
the most.

If there is a family business or farm that a child is
involved in, quite often that child is not compensated for the amount of
time and work contributed, and to make up for it, parents leave them a
larger inheritance, usually consisting of the business. Even if the
child is fairly compensated for their time, the parents may want the
whole business to go to the child involved, rather than making all the
children equal owners. Other assets, such as life insurance and
investment accounts, are then given to the other children to make the
distributions equal.

Even if the other assets may not be worth
enough to make the distributions equal, the parents may still want the
child involved to receive the whole business. Yet other parents choose
to leave everything equally to all children, even if that means the
child in the business has to buy the others out.

Parents with a
special needs child may choose to leave a larger share to the child in a
special needs trust, because that child will need it more than the
others. Or perhaps the special needs child could not benefit much from
an inheritance, and the parents choose to leave that child less than the
others.

As you can see, there are many options to incorporate
into your estate plan. Each family is unique, with different dynamics.
The failure to plan usually leaves the family with unintended
consequences, which is why one of the greatest gifts to leave your
family is a written plan incorporating your wishes.