We’ve all seen children arguing over a toy. “I had it first! Mom gave it to me! That’s not fair!” They argue because they feel another child took something that belongs to them, or perhaps because they are jealous of another child’s toy. While children grow up and (hopefully) mature with time, similar disputes may arise when it comes time to divide an inheritance. “Dad always talked about giving me the car! You shouldn’t get the same as me, mom already helped you with your down payment!”
No matter how much your children love each other, dividing an inheritance presents the possibility of disagreement and discord. Disagreement can produce resentment, and resentment can metastasize into estrangement. Obviously, no parent wants what they intend to be a blessing (inheritance) to turn into something that damages or destroys their children’s relationships. So, what can parents do prevent the gift of their inheritance from creating strife amongst their children?
Give an equivalent amount to all your children.
Nothing has greater potential for producing discord than an unequal inheritance. A sibling who receives less than another may feel that the parents loved the other child more, or that the parents wanted to punish him or her for some life decision. However, giving each child an “equivalent” amount does not mean they each get the same thing. For example, a married couple that has only one of their adult children still living in their hometown may choose to leave the home to that child and an equivalent amount of cash to the others.
Leaving each child the same amount seems relatively straightforward, but there may be complicating factors. For example, some assets, such as real estate, may be difficult to divide. Additionally, significant lifetime gifts, such as the purchase of a car or home for a child, should be factored into the amount that each child will receive. Dealing with these complicating factors will often require the assistance of a qualified professional, but promoting harmony among the siblings will be well worth the effort.
There are also some notable exceptions to this general rule of equivalent inheritances. For example, a child with special needs may need a larger inheritance to cover his or her medical expenses. On the other hand, a child battling addiction may need a smaller or more restricted (through a trust) inheritance. In these types of situations, an unequal inheritance may be merited and better tolerated by the children receiving less. Again, a qualified professional can provide invaluable advice on whether your situation is normal or exceptional.
Communicate your estate plan to your children.
Parents should communicate information about their estate plan to their children as soon as they are mature enough to handle it. Now, this general rule does not mean that parents must communicate exact figures, assets, or recipients. After all, these things may change over time. Rather, parents should give their children a general idea of how they will handle the inheritance. For example, parents should communicate whether they plan to give each child the same amount, how they will divide certain assets (like real estate), and whether any lifetime gifts will be considered part of a child’s share of the inheritance.
Imagine a husband and wife that have two children, Jane and John. The parents gave Jane $100,000 as a gift for a down payment on a house. John knew about this gift, but he never asked his parents for help with a down payment and they never offered. When the parents died, Jane and John learned that they were both set to receive $500,000 as an inheritance. John can’t help but feel like he should have received $100,000 more than Jane because of the gift she had already received from her parents. In his mind, his parents clearly intended to give each child the same amount but just forgot about the $100,000 gift. Jane, on the other hand, insists that their parents could have taken the gift into account but chose not to. John will now wonder about his parent’s intentions, and there is a risk he will harbor resentment towards his sister because she got more money from their parents.
The parents could have avoided this situation by clearly communicating how they intended to distribute their estate and whether they would include lifetime gifts in the inheritance calculations. Communicating these plans before they died would have allowed them to amicably work through this question and any other disagreements they might have had. If the parents really intended to give more to Jane (because Jane is a single mother, for example), communicating this intent before death could have helped the children understand and accept it.
Give all your children an opportunity to oversee the administration of your estate.
In most cases, the best option for reducing potential strife is to make all the children co-representatives of the estate or co-trustees of the trust with an option to easily resign from the role. The estate or trust should then be managed by simple majority voting. If there are an even number of children, an independent third party can be appointed as the tie-breaker. Because administering an estate or trust can be complex and unfamiliar to the average individual, we recommend that co-representatives and co-trustees seek qualified legal counsel.
Some may respond to this general rule with the old adage “too many cooks in the kitchen.” This saying describes a situation in which there are so many decision-makers that nothing gets done. When it comes to managing an estate, however, it is more the exception than the rule. Selecting only one child to serve as representative of an estate or trustee of a trust tends to produce suspicion and jealously among the other heirs or their significant others. “Is she getting paid for her role?” “Has he made any decisions we don’t know about?” These are questions that will naturally arise when one sibling has authority and others do not. Nevertheless, some heirs simply may not have the time or desire to serve in such a role. Naming them as a representative or trustee can still reduce suspicion and strife by making them feel like it was their own decision not to participate.
As the example above illustrates, communication with your children about your estate plan is vitally important. It can root out problems before they begin. Additionally, parents should try to give an equivalent amount to each child and give each of them the opportunity to participate in the administration of their estate.
In addition to our top-notch investment advisory services, Black Cypress also provides estate planning and heir education. If you have any questions about how we couple these services or how we could serve you, please contact us at email@example.com or (843) 259-2009.
Article by Black Cypress Capital