It is natural for parents to want to treat their children equally when it comes to inheritances. However, equal treatment is not always the best course of action when it comes to estate planning and gifts. Here are some situations that call for unequal treatment:
Naming executors – while your first instinct may be to name all your children as co-executors of your estate, instead consider choosing the child who is most capable and trustworthy for managing estate responsibilities. In some circumstances, you may want to name another relative, family friend or a professional.
And, in all cases, be sure to communicate with your children directly why you made the choice you did (preferably during your lifetime) so there is no conflict after your death. If you cannot communicate this while you are living, write a letter to be read after you are gone, explaining your choices, so there are no hard feelings or confusion.
Incapacity – if you have a child with special needs, or one who struggles with drug or alcohol abuse, giving money or assets directly to that child is probably not in their best interest. In the case of a special needs child, bequeathing assets directly can result in their disqualification from important government benefits. Instead, consider using a trust to leave assets and name a qualified trustee to oversee distributions. You have several choices, including:
Lifetime Asset Protection Trust -- Most trusts distribute assets outright to your
children when they turn 25, 30 and 35. This would then put their inherited assets at
risk from lawsuits, divorce, bankruptcies and other creditor issues. Instead, consider
keeping the assets in trust for their lifetime, and you can even give them control
without putting the assets at risk by allowing them to be a co-trustee of sole trustee of
the trust. But so long as the assets remain in the trust, they will be protected. It is a
unique trust that is not widely known, but we have specific knowledge and training to
ensure that what you leave to your children will not be at risk from future threats like
divorce, bankruptcy or a legal judgment.
Special Needs Trust -- A child with special needs should be protected via a special
needs trust, which preserves assets for their benefit, names a trustee to oversee
distributions, and does not disqualify them from receiving special government benefits
like an outright inheritance would.
Trusteed IRA -- The trusteed IRA is a traditional IRA with a few of the estate planning
advantages of a trust. It is designed to provide a long-term distribution plan for IRA
assets for more than one generation of beneficiaries. Trusteed IRAs are a wonderful
tool for those who want to control how their IRA assets are distributed after they are
gone since it allows the original owner to dictate how withdrawals can be made.
Gifting – gifting to a child with substance abuse or creditor issues is usually not a wise move. Instead, if you are gifting for an education or to pay medical bills, you can pay educational and healthcare organizations directly for that child’s benefit.
Call our office to schedule time for a private Family Wealth Planning Session, during which we can identify the best ways for you to ensure a legacy of love and financial security for your family.