If you are a parent, one of your primary goals when you create an estate plan is likely ensuring that the inheritance you leave behind for your children is passed down to them according to your wishes. You may, however, be torn with regard to exactly how much of an inheritance to leave each child. Should you split your estate equally among your children – even if you have concerns about how one child will handle his/her inheritance? In an effort to help you, the Harrison inheritance planning attorneys at the Law Offices of Kobrick & Moccia discuss the equal inheritance dilemma faced by many parents.
The Inheritance Dilemma
When your children are still minors, deciding how to divide your estate is fairly straightforward. Most parents in that situation simply create a trust and let the trust protect all assets while the children are minors because a minor cannot inherit from your estate. Typically, the trust terms call for those assets to be split equally among the children when they reach adulthood if assets remain in the trust. Once your children become adults, however, there are a number of factors and circumstances that could cause you to hesitate when dividing your estate equally among your children, such as:
- Addiction – no parent wants to admit that a child has an addiction; however, if you have an adult child with a drug, alcohol, gambling, or other addiction, it is imperative that you face that reality when making estate planning decisions. Handing an addict a large sum of money is usually akin to throwing that money in the trash.
- Marriage – if your adult child gets married, the moment he/she says “I do” your new in-law becomes a potential threat to your assets. Anything you gift to your child could be lost in a subsequent divorce or as a result of mismanagement by the new in-law which can understandably give you pause when contemplating passing down an inheritance.
- Spendthrift – if you have several children there is a good chance one will be a spendthrift – someone who simply isn’t good with money. No matter how many conversations you have with this child about responsible financial planning and spending, he/she ends up with money problems yet again. An inheritance could disappear in record time with nothing to show for it.
Is Gifting Equally A Wise Choice?
If you have a modest to large estate, dividing your estate equally among your children may result in gifting a large lump sum of money to each child. If you are relatively certain that handing one of your children a lump sum of money is a bad idea, it seems only wise, from a financial perspective, to rule out an equal division of your assets. As a parent, however, you may feel a tremendous amount of guilt leaving one of your children less than you leave the other(s). That puts you right back where you were to begin with in terms of deciding how to divide your estate. Fortunately, there are estate planning tools and strategies that can help you to assuage your guilt without putting your hard-earned assets at risk.
Is an Incentive Trust the Answer?
If you are concerned about handing one (or more) of your children a significant sum of money in a lump sum, yet you do not want to leave that child less than you leave your other children, there may be a solution – creating an incentive trust. An incentive trust allows you to appoint a Trustee to manage and invest the assets you transfer into the trust and to oversee the administration of the trust terms. Moreover, you can use the trust terms to decide what those assets may be used for and when they can be distributed. Using an incentive trust lets you leave a significant amount of assets to any child, but under the watchful eye of a Trustee and only to be used according to the terms you established, which should go a long way toward resolving your concerns.
Contact Harrison Inheritance Planning Attorneys
Please feel free to download our FREE estate planning worksheet. If you have additional questions or concerns about the best way to pass down the inheritance you plan to leave your children, contact the Harrison inheritance planning attorneys at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.