Q: I’m confused about how to divide my estate between my children, who have different needs and financial resources. Is it best to divide it into equal parts?
This question raises some significant issues about fairness and about how to handle estate planning—particularly the importance of communicating with your heirs about your wishes and intentions. When it comes to family and money, even the most generous of impulses can be misinterpreted.
For instance, I felt for a friend of mine who was left out of his mother’s will. It’s not that he had a bad relationship with his mother, but he was financially far better off than his two sisters. His mother’s estate was small and she divided it between her daughters, who really needed the money. My friend understood this, and didn’t resent his sisters, yet he was wounded. He wished that his mother had discussed her decision with him before she died, so he could have been forewarned—and reassured that she loved him.
In another case a friend’s father gave her less than her sibling because she was a stay-at-home mom. He justified this by saying that she was already taken care of by her husband. But to my friend it felt like her father was making a judgment about her life choice.
Consider the Emotional Message You’re Sending
The more I hear stories like these, the more I believe that it makes a lot of sense for parents to treat their children equally. While it’s completely understandable to consider providing extra assistance to a child with fewer resources (and that could be the best decision, depending on the circumstances), or for a child with special needs, as I discuss in Question 50, it’s important to proceed with care.
First, understand that your children may easily perceive their inheritance as a symbol for your love. Even when they’re adults, childhood insecurities can linger. A perceived slight could trigger resentment that could last for decades.
Also, remember that things can (and do) change. One child may be earning a lot more now, but it’s impossible to accurately predict the future. By the time your estate is distributed, your kids’ fortunes may have altered. Just look at the financial turmoil and turnarounds of the past few years!
Talk to All Your Children About Your Decision
If you do decide to divide your estate unequally, it’s generally best to explain your plan to all of your children now. Be up front about your concerns for all of them, both financial and emotional. Hopefully, they’ll be honest in their response so that you can have a good discussion.
Smart Move: To even things out, you can consider an estate plan that provides more money for the kids who need it, and gives family heirlooms or other nonfinancial assets to those who don’t. Or you may want to give annual gifts to those who may need more financial help now (or perhaps to their children, such as contributions to a 529 college savings plan).
Of course, it’s possible that you won’t be able to make everyone happy. Ultimately, it’s your money and your decision. The main thing is to be fair. Think carefully before you decide to give one of the kids more money than another. After all, the last thing you want to do is to foster resentment that could live on for years after you’ve gone.
Talk to an Expert: No matter how big or small your estate, I recommend working with an estate planning attorney to make sure your will and other documents are in good shape. If you have substantial wealth, you may also need to think about ways to minimize estate or inheritance taxes. See Question 39.
Should One of Your Children Be Executor or Trustee for Your Estate?
Appointing a family member to manage your assets can make sense, but it can also cause problems. Before you choose one of your children, give some thought to the following questions:
- What type of management will your estate require? The bigger your estate, the bigger the job. An executor (for your will) or a trustee (for a trust) is responsible not only for settling your accounts and distributing assets, but also for the ongoing management of those assets for current and future beneficiaries. There are tax and legal documents to file, records to keep, and ongoing financial decisions to make. If your assets are extensive and your estate is complicated, this person may need the help of outside advisors to carry out your wishes.
- Who is most suited professionally? Emotionally? Practically? On top of having financial savvy, an executor or trustee must be responsible, practical, organized, and able to handle potential pressure from the beneficiaries. Who among your children best combines these traits? On a purely practical level, who actually has the time for ongoing management of your estate?
- What’s the potential for family misunderstanding? When one person in a family is given authority or power over others, there’s always the potential for problems. Your children may all get along now, but could that change when money is involved or issues of control arise? Also, selecting one child over another may be interpreted as trusting or valuing one of them more. To avoid resentments, speak directly with your family about what the job will entail and why you’re considering appointing one of them.
- Would a corporate trustee be a smart choice? Another option is to appoint a corporate trustee, such as a bank or trust company. On the plus side, a corporate trustee can potentially provide all the investment and legal expertise under one roof. A corporate trustee can also be impartial in assessing requests and distributing assets. On the negative side, your heirs would be working with an impersonal institution and have to deal with the possibility that the staff or even the ownership of the company could change over time. Another negative is that fees for a corporate trustee are often higher than for an individual trustee.
Caution: Appointing two or more people can invite trouble. When there are only two beneficiaries—for instance, a brother and sister who get along well—it could work fine. But when there are multiple beneficiaries, it’s probably best to have one person or entity making the decisions and handling the details.
- What about compensation? Being a trustee is a time-consuming job and a fee is certainly warranted, but a family trustee might feel awkward taking a fee, or other beneficiaries might question if it’s being earned. To avoid problems, designate how trustee fees will be determined. Your estate planning attorney should be able to provide some guidance.
Part V: Estate Planning, Question 40
Additional excerpts
- I just retired. What’s the smartest way to draw income from my portfolio?
- How can I save for my kids’ college without derailing my retirement?
- Does it make sense to borrow from my 401(k) if I need cash?
- When should I file for Social Security benefits?
- Should I be debt-free before I retire?
- My husband has no interest in our finances. How can I get him involved?
- My 20-something child has decided that she wants to move back home. I like my new empty-nest lifestyle, but I want to help her out. How can I balance these?