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:
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.
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 or 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 I 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 as an outright inheritance would.
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 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.
This article is a service of the Law Office of Keoni Souza, LLC, an estate planning law firm in Honolulu, Hawaii. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by contacting our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.
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