Parents may have the best intentions when dividing assets between their children, but it’s easy to cause a rift between family members if it’s not done right. Financial and estate planners say parents can often overcome problems while they’re still alive by discussing the goals and intentions of their estate plans with their children. The key is not to reveal the dollar figures. rather, these conversations allow parents to set expectations for their children. This is not a solution for all families. Many parents fear opening a can of worms by even talking about estate plans. “They don’t want to initiate conversations…
Parents may have the best intentions when dividing assets between their children, but it’s easy to cause a rift between family members if it’s not done right.
Financial and estate planners say parents can often overcome problems while they’re still alive by discussing the goals and intentions of their estate plans with their children. The key is not to reveal the dollar figures. rather, these conversations allow parents to set expectations for their children.
This is not a solution for all families. Many parents fear opening a can of worms by even talking about estate plans. “They don’t want to start conversations with their children, believing that an open discussion might raise more questions than parents want to answer,” says Nancy Hearn, a partner in the personal wealth, estate and trust practice. Saul Ewing Arnstein and Lehr.
Brian Tice, managing director of Ewing & Jones, which specializes in estate planning and probate law, says he gets it wrong when parents talk to their kids about estate planning, but he says he understands. , why parents refuse to talk. Instead, he says, some of his clients include side letters in their wills that aren’t part of the legal document, explaining their intentions.
“You have to provide some context. It is the last message to that child,” he says.
Regardless of the size of the family’s wealth, parents should take care to limit arguments. Here are three situations where problems are particularly likely to arise.
• Trying to be fair when assets are not evenly distributed
Parents who give more assets to one child than others can limit misunderstandings if they explain their reasons in advance. Hearn says it’s especially important for parents to emphasize to their children that any unequal amount of gifts is not given to children who receive less because of favoritism.
“The guiding principle that parents should follow is that all children feel equally loved,” Hearn says.
Tice says he is currently working on an estate plan where the parents have already given one child $200,000 for a down payment on a house, so the parents have explained why the other children will receive an additional $200,000 before dividing the remaining assets.
Last year, he created an estate plan for another couple who have three children, a son who is a wealthy doctor and two other children of more modest means. The parents planned to give 20% of their property to the doctor and 40% to the other children. The parents explained their decision in advance to their son, a doctor, who in turn asked the parents to give him even less money, Thies said.
It doesn’t always work out that way, she says, because some kids see a smaller inheritance as punishment for being successful. Parents who expect a significant response from a child who will receive an unequal gift and want to avoid fighting while they are alive would do well to include a letter of intent in a will.
• Division of unique property
Christa Dos Santos, head of financial planning at GenTrust, says sometimes parents know what unique assets their children want and may not require additional communication. He said one couple he worked with split their liquid assets equally between their son and daughter and left their son a classic car while their daughter got her mother’s jewelry. Neither was surprised by the gifts, but it could have easily gone the other way.
He worked with another family that left one child a summer house and another an investment property of roughly equal cash value. The child who received the investment property was upset. “This child had such fond memories of the country house that they would have much preferred to get the property because there was such a sentimental attachment, or even split both properties with their brother,” he says.
With unique items, she says some families use sticky notes to mark cherished heirlooms. If a piece has more than one sticker, the family should discuss it,” he adds.
• Failure to adequately protect children’s inheritance in blended families
Parents with children from previous marriages must take extra care to ensure that their children are financially protected. Without proper estate planning, stepchildren can be disinherited when a parent dies. Children should be pointed out these provisions, sources said.
Separate wills for each spouse can add a layer of protection, especially “contractual” wills, Thies says. In this will, each spouse agrees that the surviving spouse has no legal right to make a new one
a will which cuts out the children of a deceased spouse.
Dos Santos says his clients sometimes use a qualified fixed-term estate trust, which allows an individual to leave assets to a surviving spouse and pay out the remaining assets upon the surviving spouse’s death. The surviving spouse has no option
make changes to how the balance is paid, he adds. He recommends having a corporate trustee rather than a family member.
However, paying trusts to children after the death of the surviving spouse can be inconvenient for everyone, especially if the surviving spouse is much younger. Dos Santos says one client who remarried to a woman the same age as his children decided to set up large life insurance policies for his children rather than
confidence.
“This way, his wife could keep all of their existing assets—house, bank account, retirement accounts, investment accounts, etc.—and the kids would still get a very healthy lump sum from the life insurance,” he says.
Write to editors@barrons.com
[ad_2]