A Guide to Dividing Your Estate Unequally
Dividing your estate among family can be difficult to think about when you are living. Nevertheless, not having a will may lead to more complications and is ultimately irresponsible. Quite often, equally dividing assets among children makes the most sense. However, there may be some cases in which giving each child an identical inheritance might not be the best decision.
Keep in mind the distinctions between leaving an equal inheritance, in which each child receives an identical amount, and an equitable inheritance, in which each child receives what you consider appropriate. The choices you make might affect sibling harmony as well as whether your intentions are executed as you intended.
When each of your children has similar lifestyle needs, received similar support in the past from their parents, and are mentally and emotionally responsible, it may make sense for each child to receive an equal inheritance.
If your legacy involves real estate and other tangible assets, you will need to determine a dollar amount for each and decide what makes the most sense to leave for each child. Location may also be a deciding factor in whether or not a child receives a home, for example. If one lives nearby and has always enjoyed that house it could make the most sense to leave it to them. Any existing differences in values of properties could be left in cash or other assets.
Less pleasantly, you may decide to leave an equal inheritance to your children in order to avoid any costs of conflict, both emotionally and financially. The best way to decide who receives what may be to weigh the likelihood of a child involving litigation in the estate. If that becomes the case, your assets may also end up differently than you originally intended.
Equally distributing your assets to your children may not always be the best option for you. For example, one of your children may be acting as your caregiver and you feel they should be rewarded for their time and efforts. Alternatively, one child may have received more throughout their lifetime than another - whether it was their wedding, grad school or a down payment on a house. In this case, you may want to leave an equal inheritance to your other children and a smaller amount to the child you previously gifted money. Sometimes it may make more sense to gift the extra money directly before you pass away - this can avoid the issue of having an unequal will, but you will want to be careful to avoid additional tax liability. During your lifetime, gifting something like a house, for example, is a terrible idea. Heirs will get a step up in basis that will not be available if you gift the asset directly while you are alive. Make sure you discuss any gifting plans with a tax advisor before you do it.
If you have a child who is unable to care for themselves, you may opt to leave a portion of your estate to provide for that child’s care through a special needs trust. We usually recommend a local estate attorney who focuses on special needs trusts. A disabled child may need extra support to meet living expenses and medical needs that their siblings are likely to understand.
There are a number of circumstances in which you may consider leaving different amounts to your children:
- Blended families with children who may inherit from another parent
- Family businesses with one or more children who have higher percentages of ownership
- Financially irresponsible children - with these, you may consider setting up a "spendthrift trust" to avoid overspending from the trust
Regardless of the division of assets, it’s always important to communicate your intentions to all those involved so that your requests are clear and there are no surprises.
How to Protect Your Estate
By leaving unequal amounts to your children, you put yourself at a higher risk of them being unhappy or unsettled with the decision. In order to minimize the chances of one of your children contesting your will in court, as well as their chances of winning if they do, there are a few options available to you.
First, a non-contestability clause states within your will that any inheritor who takes your will to court forfeits any bequests. In order for the clause to be effective, your child has to have something to lose and you’ll need to leave them enough that they likely have more to gain by accepting the outcome than by going to court.1
This may not be your most favorable option, but it may mean the best chance of keeping your will intact. This type of clause varies by state so it’s important to check your state’s laws before considering this route.
Other ways to avoid challenges with your will2 include:
- Having your doctor as a witness when you sign your will in order to invalidate claims of lack of capacity.
- Excluding each of your children from the will-writing process to invalidate claims of undue influence.
- Discussing your will with each child to explain your reasoning and avoid surprises.
If a lawsuit does arise regarding your estate, it will likely end in a costly settlement that will undoubtedly alter your estate plan. Funds will likely end up in a different place or with a different person than you had originally proposed.
The Bottom Line
Regardless of how you decide to leave your inheritance, it’s important to keep in mind that it is your wealth and you have the right to do with it what you choose. That being said, whether you leave an equal or equitable inheritance to your children should depend on your existing relationship and the lifestyles they have led. If perceived inequality takes place because of uneven distribution of your assets, the likelihood of legal mediation increases and it’s up to you to decide how significant that risk may be.
Planning your estate carefully may not be easy, but it is one of the most important things you can do to get your affairs in order. If you have any questions about the best way to set up your estate, send us a secure message using the form below:
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.