It is common for parents to distribute their estate equally to all children. However, treating your children fairly doesn't necessarily mean equally. The following are five reasons that might make an unequal distribution the fair thing to do:
1. You spent more on one child than the others.
If you financed the college education of your children and one went to a very expensive university, while the others went to community college or didn't attend college at all, it might not be fair to split your estate into equal shares. Or, perhaps you gave money for a house downpayment or made a loan to a child, it might be unfair that all children receive an equal inheritance.
2. A child earns substantially more money than the others.
While the high-earner shouldn't be penalized for being successful, the high-earner will likely not need the inheritance as much as his/her less affluent siblings. If one child is a multi-millionaire and the others are struggling to get by, a larger share of the inheritance will probably be most needed and appreciated by the others.
3. A child has special needs.
A child with special needs will likely require more financial help than his/her siblings. While a large portion, if not the entire inheritance, might be needed to sustain the special needs child through his/her lifetime, siblings can take comfort that their special needs sibling will be cared for and they won't be burdened by his/her financial needs. If the special needs child receives government assistance, it is important that any inheritance is put into a special needs trust to avoid disqualification of government benefits.
4. A child is best qualified to run the family business.
If one child is familiar with the inner workings of the family business and worked there for years, while the others chose other career paths, it seems unfair to split the business into equal shares. In fact, it might be detrimental to the success of the business.
5. You have a blended family.
If you have children from a previous relationship and your spouse has substantially more assets than you, your spouse might think it unfair to split his/her assets between your children together and your children from a previous relationship. In this situation, it might make sense to base distribution of the estate on which spouse is the last to become deceased. For example, if you die last, then equal distributions to all children. If your spouse is the last to die, then distribution to your children together with your children from a previous relationship receiving nothing.
If you decide on making an unequal, but fair distribution, it might be a good idea to explain why. Children often equate money with love. A child receiving less than the others might think that you loved him/her less than his/her siblings. A letter accompanying your estate plan explaining the distribution of your estate is simple to do and can prevent any long-lasting hurt feelings.
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