From the moment you became a parent you have likely felt the pressure to treat your children equally and not play favorites. That same pressure often asserts itself when it comes time to think about how to distribute your estate. When your children are minors, deciding how to divide your estate is less complicated. You will likely create a trust and let the trust protect all assets while the children are minors. Deciding to divide your estate equally among your minor children is an easy decision because there are no extenuating circumstances to consider at that point. A Phoenix estate planning attorney at Morris Hall PLLC explains what to do if you want to treat your children differently in your estate plan.
Why Might You Not Want to Divide Your Estate Equally?
Why might you not want your assets split evenly among your children? There are several reasons why a parent might have legitimate concerns about gifting assets to an adult child, including:
- Addiction – as a parent you probably don’t want to admit that your child has a serious addiction; however, if you have an adult child with a drug, alcohol, gambling, or other addiction, it is imperative that you acknowledge the problem when making estate planning decisions because failing to do so could have disastrous consequences, both for the inheritance you leave that child and for your child.
- The in-law threat – if your adult child marries, you gain a son-in-law or daughter-in-law. The moment the ink is dry on the marriage certificate, 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 because of mismanagement by the spouse, giving you cause to be concerned about gifting assets to your child.
- Mental health issues –managing an inheritance may be asking too much of an adult child who struggles with mental health issues. Again, you must be honest with yourself when evaluating your child’s ability to handle an inheritance. In addition, if your child has special needs, receiving an inheritance could jeopardize his/her eligibility for much needed state and federal assistance programs such as Medicaid and SSI.
- The family spendthrift – you can find one in almost every family, that one family member who simply is not good with money no matter how much effort you put into teaching him/her money management skills.
Estate Planning Alternatives
If you do not want to divide your estate equally and gift those assets outright to your children, you may wish to consider using the following estate planning alternatives instead:
- Letter of Instruction — for a parent, it can be heart-wrenching to think about disinheriting a child. It can be just as upsetting to feel as though the only way you can protect your heard-earned assets will make one of your children feel left out. Fortunately, there are estate planning strategies and tools that may be able to help if you are struggling with the issue of equal gifting. One of the most important steps to take if you have made the decision not to distribute your estate equally is to explain your decision while you are still here or in a Letter of Instructions that is included in your estate plan. Failing to do so dramatically increases the likelihood of litigation after you are gone. As the name suggests, a Letter of Instructions is simply a document that allows you to explain anything that is not included elsewhere in your estate plan, including providing an explanation for the decision to not leave identical gifts to your children.
- Trust Agreement — 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 a trust. A 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. Consequently, you can decide what those assets may be used for and when they can be distributed. Using a 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.
Contact a Phoenix Estate Planning Attorney
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about your estate plan, contact an experienced Phoenix estate planning attorney at Morris Hall PLLC by calling 888-222-1328 to schedule your appointment today.