Is is ever appropriate to treat your children differently from one another in your estate plan?
Although we all know that it is important to be careful to treat your children fairly as you craft your estate plan, we should also be aware that fair (“equitable”) treatment is not necessary “equal” treatment. In fact, there are times when treating two children equally is patently unfair. For example, to give equal allowances to a 4-year-old and a 14-year-old would be unfair, since one has more expenses, more mature understanding, and more responsibilities. In the same way, leaving all of your children equal portions of your estate may be unfair to one who has special needs or one who is in a particularly difficult situation. In making decisions regarding equitable distribution of your estate to your children, it is essential that you discuss your plan with your trusted estate planning attorney.
Problems to Consider When the Distribution of Your Wealth Will Not Be Even-Steven
There may be implicit problems in leaving your children different amounts, or in leaving their assets to be distributed in different ways. In order to avoid a contested will or a rupture in family relationships, it is essential that you make your decisions with care and sound legal advice and that you then apprise your children of how and why your decisions have been made.
Times When Unequal Is Really Fair
Examples of situations in which parents have to consider the separate and different needs of their children as individuals are not hard to come by. They are common in families everywhere. Below are some of the most frequently seen circumstances in which equitable distribution may be unequal:
A Child with Disabilities
If you have a child who is severely mentally challenged, has an autism spectrum disorder, or suffers from a musculoskeletal or other disease that makes it impossible for him or her to be gainfully employed, he or she is most likely receiving governmental benefits. As much as you want to ensure that this child is well cared for after your death, you don’t want to leave an inheritance that will result in that child becoming ineligible for government benefits which sustain him or her. I such a case, your attorney can help you to set up a Special Needs Trust to protect that child from losing benefits -- such as Medicaid or SSI -- that may be crucial to his or her well-being.
A Child with a Psychiatric Illness
Many types of psychiatric illness make it difficult for adult children to manage money. Those with bipolar disorder may squander assets during periods of mania; those with schizophrenia, paranoia or post-traumatic stress disorder (PTSD) may make poor decisions based on mistaken ideas or even hallucinations. In addition, such offspring may also be receiving government benefits that might be jeopardized if they received a large amount of money from your estate. In such cases, a trust should be set up to be administered by a trustee, who may be a family member, friend, or professional (like a CPA, bank employee or attorney.
A Child with an Addiction
Anyone addicted to alcohol, drugs, or gambling clearly is not to be trusted with even a modest inheritance. In such a situation it is crucial to establish a trust to safeguard both the addict and his or her inheritance.
A Child in a Dangerous or Precarious Situation
In some cases, the difficulty in leaving your child assets may only be risky temporarily. This may happen if your child is going through an acrimonious divorce, a bankruptcy, or is in the process of being sued. In such situations, a trust can be created for the immediate future and revised once the problem is resolved.
A Child Who Is a Spendthrift
It is wise for parents not to judge their adult child’s spending habits unless he or she has ended up in serious debt. If the child has gone bankrupt, perhaps more than once, routinely has his or her electricity turned off, has been evicted from a rental or had a home foreclosed, concern is warranted. In such a case it is a good idea to create a trust from which the child will receive a monthly income, rather than a lump sum.