Dividing your estate equally amongst your children seems to be the best option to ensure family harmony, but is it the right decision? Many parents choose to allocate unequal portions, awarding the children that are more responsible or designating one child as the “go-to” if the other kids need money. It might not seem fair, but that doesn’t make it wrong.
None of us wants our life’s work to be wasted. You just spent decades working on a job, scraping together a retirement fund, and using the debt avalanche method to get rid of any liabilities you could pass on to your kids. Do you want to see all that go up in smoke? Of course not. You want the money to go to where it will grow, not get frivolously spent.
Factoring in the Grandchildren
Assessing responsible financial behaviors is just one of many justifications for uneven splits of an inheritance. Many parents allocate more to their children who have children of their own. The idea is that the grandkids need to be taken care of too. A family of four needs more help than a single individual, so perhaps their inheritance should be larger.
According to Merrill Lynch, two-thirds of Americans believe that an uneven split is justified under certain circumstances. The “grandchildren” scenario is one of them. On the flip side of that, a recent Ameriprise survey found that 70% of all parent-related arguments among siblings are about inheritance. They might not all be on board with your generational plan.
Setting Up Trust Funds Instead of Granting Cash Awards
In some cases, parents elect to give equal portions of their estate to each of their children, but some of the kids get theirs in a trust fund, not as a cash award. The reasoning for this is varied. Sometimes it goes back to the issue of fiscal responsibility. It could also be a prudent move when children are underage. The trust fund keeps the money safe for them.
Trust funds can also be set up for charitable causes. This can be a source of contention among the children because it takes away from the amount of money they could inherit. One way to avoid that is to set up a “charitable lead trust,” which distributes a portion of the proceeds to a charity and then distributes the remainder to designated beneficiaries.
Proper Estate Planning Eliminates Confusion
Who or to what an estate is distributed to is ultimately up to the parents unless they don’t have a will or proper estate plan in place. If you’re starting to accumulate assets and have children who will inherit them, seek the help of a financial professional to set up an estate plan. This will eliminate any confusion when the time comes to pass on what you own.
Another decision you’ll need to make is who will be the executor of your will. If you select one of your children, they may choose to go against your wishes. It’s recommended that you use an impartial third party, such as an attorney, particularly if there are significant assets involved. The children will have no choice in that case but to accept your wishes as final.