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.
For example, parents may want to provide more to a child who
struggles to support his family on a modest income than to a child who is
financially successful and has decided not to have children. Many feel it is
fair to provide extra compensation to a child who has given up part of his/her
own life to help with a parent’s care. Younger children will need care longer
than grown children, and a child with special needs will need care for life.
Often, one child will join the family business and other children will not;
instead of making them all equal owners in the business, it may be more
appropriate to leave the business to the one who has shown an interest and
compensate the others with other assets and/or life insurance.
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. For example, children
who are much older (say, in their 60s) and have shown responsibility with their
own money may be fine with inheriting one lump sum. An adult child who is
struggling to buy a home may appreciate at least a partial immediate
distribution, with the rest later. Younger adult children may benefit from
inheriting in installments to allow several chances to become responsible with
money.
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.
Family Values and
History Are Still the Best Inheritance
According to a recent study, family values, traditions and
history still mean more than money as an inheritance.
These results are from the 2012 Allianz Life American Legacies Pulse Study* which surveyed
baby boomers (age 47 to 66) and “elders” (age 72 and older). Allianz Life
conducted a similar study in 2005. Interestingly, despite the financial crises
that occurred between 2005 and 2012, the results were strikingly similar, with
a high percentage of both boomers (86%) and elders (74%) agreeing that family
stories, values and life lessons are the most important part of a family’s
legacy.
In addition, in both studies, only four percent of boomers
said that an inheritance is “owed” to them. By contrast, the number of elders
who felt an inheritance is owed to their children dropped from 22% in 2005 to
14% in 2012; this may be a result of their concern about having to use more of
their savings for living expenses, compounded by loss of savings from lower
market values.
While the size of the financial inheritance is not seen as
important, planning is. A high percentage of both groups (82-84%) emphasized
having instructions in place in the event a parent were to become terminally
ill or permanently unconscious. Both have strong desires to avoid family
conflicts when it comes to estate planning and legacy issues. Younger people
also believe that keeping family possessions is important.
Elders also want to impress upon their children the
importance of personal responsibility. About three-fourths of elders surveyed
have obtained some professional assistance with estate planning and have
initiated discussions with their children about end-of-life and inheritance
issues. By contrast, only about a quarter of the boomers have planned their
estates and less than half have had discussions with their own children about
these issues. That may be due in part to boomers being less frugal in general
than their parents, or that they simply feel they have plenty of time left to
plan.
The best course of action is to talk with parents or
children about end-of-life issues (incapacity and health care directives,
location of important financial documents, estate planning) and what is
important to them and to you. Do this now, before illness or aging interfere
and make it impossible.
* 2012 Allianz Life American Legacies Pulse Study, sponsored
by Allianz Life Insurance Co. of North American, surveyed 1,000 “boomers” (age
44-67) and 1,007 “elders” (age 72+). The online survey was conducted January
12-19, 2012. For more information about the survey, go to https://www.allianzlife.com/about/news_and_events/news_releases.aspx?articleID=106.
Manage
Your Wealth Today to Protect Your Legacy Tomorrow
Building wealth
is only half the job. Protecting wealth for your loved ones and yourself is
equally important. Through estate planning and corporate, real estate and elder
law, Ball & Stuart, PLLC will help you protect everything you love--family,
friends and favorite charities.
For more information be
sure to visit our web site at www.ball-stuart.com where you will
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Wayne B. Ball is a Little Rock estate planning and
probate attorney serving families and businesses
in Arkansas
for more than 25 years.
To comply with the
U.S. Treasury regulations, we must inform you that (i) any U.S. federal
tax advice contained in this blog was not intended or written to be used, and
cannot be used, by any person for the purpose of avoiding U.S. federal tax
penalties that may be imposed on such person and (ii) each taxpayer should seek
advice from their tax adviser based on the taxpayer’s particular circumstances.
For educational
purposes only, compliments of Ball & Stuart PLLC. Not intended as
legal advice. For information on how to properly plan your estate, the
services of a competent professional should be sought.
