A Guide to Dividing Your Estate Unequally
Dividing your estate among family can be complicated, emotional, and overwhelming. Having a will in place reduces stress for your loved ones during an already difficult time. While evenly dividing assets among children often makes the most sense, there are cases in which giving each child an equal inheritance might not be the best decision.
Many find it easy to leave an equal inheritance, in which each child receives an identical amount. Others prefer to leave an equitable inheritance, where each child receives what is appropriate, provided the circumstances. Keeping these definitions in mind can help you decide what’s best for you and your family. The choices you make might affect sibling harmony and the smooth execution of your will.
When each of your children has similar lifestyle needs, received similar support in the past from family members, and are personally and emotionally responsible, most people would choose to leave an equal inheritance.
But the value for each heir being equal does not necessarily mean that each asset and account will be divided equally. If your legacy involves real estate and other tangible assets, you’ll need to determine their dollar values when organizing your assets. If you’re including your home in a will, its location may also be a deciding factor. If one child lives nearby and has always enjoyed that house, it would be understandable to leave it to them. Or if another child always loved one of your vintage paintings, you’ll want to leave that piece to them. Once assigning dollar values to the homes and heirlooms of your estate, you can balance out any discrepancies through cash or other assets.
Leaving Varying Amounts
There are many reasons it might be more equitable to leave unequal amounts to your children. If one of them is acting as your caregiver, you may want to reward them for their time and efforts. Or you might already have provided one of your children more financial assistance than you gave to another - whether you assisted in paying for their wedding, grad school, or a down payment on a house. In this case, you may want to leave a larger inheritance to your other children and a smaller amount to the child you previously helped.
If you have a child or grandchild who cannot care for themselves, you may opt to leave a larger portion of your estate to provide for that individual’s care through a special needs trust. Their siblings are likely to understand that the disabled child may need additional support to meet living and medical expenses. If this is the case, you will want to consult experts in Special Needs Planning to make sure you are not going to leave assets in a manner that will put essential government benefits at risk.
Other reasons for unequal distributions involve a blended family, where one child may expect to receive support from your spouse’s ex, and you might decide to leave a different amount to your step-children than to your children. Or one child might own a larger share of a family business than others do. Frequently, there is a financially irresponsible child or one you cannot trust to use an inheritance wisely (possibly suggesting the need to set up a trust).
In these situations, it would be wise to consider equitable distribution. If you feel that equitable distribution would be best for your situation but you worry about tension in your family, be sure to take steps to protect your will and estate.
How to Protect Your Estate
By leaving unequal amounts to your children, you put yourself at a higher risk of them being unhappy with the decision and contesting it. If there is a dispute regarding your estate, it will likely cause divisions in the family. It could lead to costly legal proceedings and result in alterations to your estate plan. Your assets may end up in different hands than you had initially intended. Consult your lawyer about the options available to you to minimize your children’s likelihood of contesting your will in court (and their chances of winning).
Consider a non-contestability clause in your will, stating that any inheritor who takes your will to court forfeits any bequests. For this to be effective, your child has to have something to lose; you’ll need to leave them enough that they feel they have something at risk by going to court.1 This approach may not be your most favorable option, and the language varies by state, so as with all matters of drafting legal documents, you should discuss it with your attorney.
Other ways to reduce the chance of challenges with your will include:
- Having your doctor as a witness when you sign your will to invalidate claims of lack of capacity.
- Excluding all of your children from the will-writing process to deter claims of undue influence.
- Discussing your will with each child to explain your reasoning and intentions, avoiding surprises after your death.2
If one of your beneficiaries feels your assets are being distributed inequitably, the likelihood of legal proceedings increases; it’s up to you, in consultation with your lawyer, to decide how significant that risk may be.
The Bottom Line
Regardless of the division of assets, it can reduce the risk of distress if you communicate your intentions to all those involved. Remember that it is your wealth, and you have the right to do with it what you choose. Whether you leave an equal or equitable inheritance (or make some other arrangement) should be entirely your decision. Meeting with a knowledgeable and trusted advisor to discuss your options can give you the reassurance that your plan will function as intended and that your assets will end up where you want them to be.
Be sure to check out our most recent video, Britta explains some pitfalls of FIRE retirement.
This content is developed from sources believed to be providing accurate information and is provided at least in part by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Original content of Practical Financial Planning, Inc. only is copyright © 2020 by Practical Financial Planning, Inc.