Leaving Property to Children in Unequal Shares in Your Will
Parents with more than one child often face a common dilemma about how to distribute their property in an equitable manner to their children. Ideally, most parents would prefer to divide their estates in equal proportions among all their children. However, due to the increasing interdependence of parents and adult children, a parent may decide later in life that one child has done so much for him or her that the parent wants to give a larger inheritance to that child. Other times a parent has given loans to an adult child or paid for a child’s education or first home and wants to reduce that child’s inheritance out of fairness to the siblings.
Like many parents, Betty recently faced this dilemma when making her estate plan. Betty is an 80-year-old widow residing in Cleveland, Ohio. She expects to leave behind an estate of approximately $350,000 to her three sons, Charles, Robert, and Harry. Charles teaches English in Brazil and lives very frugally. While Charles is rarely able to come home to visit, Betty never has to worry about him. Robert lives a few blocks from Betty’s home with his fourth wife. Robert has been charged with DUI twice, owes alimony to two ex-wives, and has been unemployed for the past six years. Betty loaned Robert $60,000 to help with his legal expenses and he has not repaid the money. Harry lives in Indianapolis with his wife and two daughters. Harry and his family visit Betty at least one weekend a month. They take her shopping, perform maintenance on her home, and cook meals for her. Harry also takes off work several times a year to drive Betty to doctor’s appointments and to visit her sister in Michigan.
While Betty worries constantly about Robert, she is thankful for the support from Harry and her granddaughters. When she made her first will twelve years ago, she bequeathed her property in equal parts to all three children. Betty recently met with an estate planning attorney about changing her will. When her attorney asked if she wanted all three children to receive the same amount of money and other property, Betty felt conflicted inside. She instantly felt Harry should receive something more for how attentive and caring he has been. He could also use some help paying college tuition for her two grandchildren. While she doesn’t want to disinherit any of her children, she doubts Robert will ever repay the $60,000 loan. Charles is a good saver and she knows he really doesn’t need an inheritance from her estate. But Betty has always tried to give each of her children the same amount of love and affection. She wouldn’t dream of favoring one child over another and certainly doesn’t want any of her sons to have animosity toward one another after her death.
Betty is facing the same estate planning concerns many senior citizens face today. Fortunately, Betty’s estate planning attorney has helped many clients in similar situations revise their estate planning documents. He understood Betty’s primary estate planning goals were to be fair to each of her children and ensure they will not have to spend a lot of time settling her estate.
First, he helped Betty establish a living trust and transferred title to her property to the living trust so her estate will pass outside of probate. In addition, he included provisions in her living trust and her new pour-over will to pass her property in way that acknowledges Harry’s extraordinary efforts and takes into account the money Robert has already received. Due to the significant sacrifices Harry has made to take care of Betty, Betty’s new living trust leaves 50% of her estate to Harry. The remaining 50% will be divided between Robert and Charles, except that Robert’s inheritance will be reduced by $60,000 or the amount that remains unpaid at her death. Her estate planning documents state that such loan will be forgiven at that time. Her attorney also advised her regarding the gift tax consequences of making a loan to a child and forgiving the loan as part an estate plan.
No-contest clauses, also called in terrorem or forfeiture clauses, were included in Betty’s living trust and will so if one of her children contests the will, that child should receive nothing from her estate. To avoid any surprises or hurt feelings, Betty’s attorney urged her to talk with her children about what amounts of money and property they can expect to receive after her death. She also plans to write a letter explaining her estate planning decisions and attach it to her living trust and will. After her death, her children can read the letter for insight into why they received unequal shares.
While Betty struggled with the decision about how to pass her property to her children, she now realizes many parents must address these issues at some point in their lives. It was difficult for her to sit down and review her will, but she is happy her estate plan is now complete and that each of her children will receive an inheritance to help them after she is gone. Because she created a living trust, she also knows her sons will be spared the delays and costs of probate. For help making your own will or living trust, review the book Plan Your Estate.
.