Most clients want to treat their children fairly and equally. But equal is not always fair. Equal treatment of two children would mean each child receives the same share (e.g. 50% for Child A, and 50% for Child B). But this equal treatment fails to consider key factors. When dividing assets, it is important to examine the situation holistically.
Gifts and Loans
Equal treatment fails to consider any gifts given to one child and not the other. Some gifts may be considered an advance against an inheritance, but most people do not take the right steps to have them considered as such. A trust can be designed to deal with prior or continuing gifts or outstanding loans. Note that a loan extended would be considered an asset of the estate that a personal representative or trustee would have the legal authority to collect. Accordingly, it is important to identify any advances, gifts, or loans correctly to avoid confusion after death.
Special Circumstances
There are some special circumstances where it may be fair to treat children unequally. One such circumstance is a family business. If you own a family business, there are numerous issues to consider, for example:
- What if some children work in the business and others do not?
- Do you want the business sold, or to continue to provide for those who have chosen to continue running the business?
- Were those children helping to run the business fairly compensated for helping, or have they sacrificed over the years to support the family business in hopes of receiving a payoff later?
Another special circumstance to consider is the financial understanding of your children. If one child is a responsible spender, you may feel comfortable leaving them assets free of trust and free of restrictions. However, if the other child is careless with their finances, the better option would be to keep that child’s share protected in trust.
Given these issues to consider, equal distribution may not be right for your family. If you are trying to divide your assets fairly and equally, it is important to plan ahead. The estate planning lawyers at Frye, Fortich & Garcia, P.L. can help you plan and avoid common mistakes.
