Most parents want to treat their children fairly in their estate planning and many assume that means having their children inherit equally. But fair does not necessarily mean equal. There may be special circumstances to consider.
When to Give Access to Inheritances
Not only do parents need to decide how much each child should receive, but also when they will receive it—and that can be different for each one, too. Inheritances can be distributed in one lump sum or in installments, or an inheritance can stay in a trust. Parents should consider how much the inheritance is, children’s ages and family situations, how they have handled their own money, and how much they need the inheritance.
The Benefit of Trust Protections
Many parents decide to keep the money in a trust for their children. That’s because assets that stay in the trust are protected from irresponsible spending, creditors (bankruptcy and divorce), and predators (those with undue influence on a child). The trustee can still make periodic distributions based on guidelines provided in the trust document. This can be a good solution when a child is irresponsible with money or has dependency issues; there is concern that a current or future marriage might end in divorce and the parents want to protect the inheritance from being part of a divorce settlement; or there is a concern that the inheritance may be exposed to future lawsuits or creditors of the children.
If you can afford it, you may want to consider giving your children some of their inheritance now so you can see the results of your gifts now. Seeing your children buy a home, start a business or be able to stay at home and raise your grandchildren, or seeing the grandchildren go to college, and knowing this may not have happened without your help, can be very heartwarming. Also, gifts made now will reduce the amount of estate taxes that may be due at your death.
Most parents want to leave their children enough that they can do anything they want, but not so much that they will do nothing at all. You don’t have to leave everything to your children. If you have sizeable assets, you can set up trusts for your grandchildren and future generations and/or make contributions to charitable, educational, and religious organizations.