The transfer of wealth, your estate plan, communicates many things to those we leave behind. It says who is remembered, who is loved, who is important, and who we trust to be in charge. Therefore, dividing your assets between your children can be a stressful ordeal. Many parents want to be fair to everyone, which may equate to an even split of all assets. For most families, however, an even split doesn’t make the most sense. How you handle this delicate situation with your own family depends on many personal factors. Nonetheless, if you don’t make the division of assets clear in your estate documents, and overlook account titling and beneficiary designations, it could lead to many complications and mistaken messages for your children after you are gone.
As a parent you might easily forget that you do have the option of leaving your estate to whoever you want, in whatever portions you want. You’re not required to split your assets fairly or evenly (and this may be heresy, but nor are children entitled to an inheritance either). In most cases, parents want to be fair to each child, but it’s important to remember that it’s not a necessity.
Even when parents desire a fair distribution, this does not necessarily mean an equal distribution. For example, a child who has special needs may require more money to be provided for in the long term. Alternatively, if one of your children is a high-earning surgeon, and the other is a teacher, you may want to gift the latter child a larger portion of your inheritance. Even though the distribution is not equal, it might still be considered fair.
Of course, what you think is fair may not be seen that way by your children, which could turn into completely unintended, long-lasting and deep resentment or hurt feelings. The surgeon child may feel slighted. After all, she worked hard to get to the point where she’s so financially successful and may not feel that it’s fair of you to leave her a lesser share. However, you may have paid more for the surgeon child's medical education and the teacher child may think they should get more because their education cost much less. Either way, a grudge may be held for years, especially if the distribution is not rationalized or discussed beforehand.
In our experience of working with families after a parent passes away, it’s usually the personal property that really has the potential to cause lasting conflict. Who gets mom’s ring or dad’s watch can be much more problematic than money itself. Therefore, we always recommend leaving a separate list of cherished personal property with clear instructions as to who gets what. Most states admit a separate personal property list called a Personal Property Memorandum as part of the Will.
The single best way to avoid miscommunication or unintended consequences is often to communicate your plans and desires to your family before they discover what you were trying to say or accomplish by reading through the estate instructions. Nothing beats the simple method of a family discussion, conducted in the right way, so that you can make sure the truly important feelings and ideas you have are communicated directly by you, with all the well-meaning intentions and feelings of love that you may have. An attorney that they’ve never met before, reading your well-crafted document to your bereaving family in some office conference room, will never have the same impact as words spoken directly by you to them. There have been many examples of successful family intergenerational wealth transfers, and all of them cite clear, open communication between family members as a critical factor in that success. This does not mean you need to talk about actual dollar amounts and reveal your net worth to your beneficiaries, but it is a crucially valuable moment to spend with your family so that you can make sure they understand your intentions.
Finally, parents will often do their best to be equal with their bequests in their estate documents and then overlook account titling and beneficiary designations. The instructions contained in your Will or Trust may leave everything equally to your children, but those do not override a beneficiary designation or account title that says something different. For instance, if your Individual Retirement Account (IRA) has one child as a beneficiary, yet in your estate documents you instruct that your trust or other assets should be divided evenly, that instruction will not apply to the IRA. A beneficiary designation, or joint account, will pass directly to the person named and will not be divided with the rest of your estate assets. This is why we often spend time reviewing our client’s estate documents in conjunction with the titling of their assets.
It’s important to discuss your estate planning as a family, if you want to make sure there are no misunderstandings or disputes after you have died. It’s also necessary to realize that if you aren’t careful with your estate plan, your intentions may not be made clear as you had thought, and the estate may be divided in an unequal manner despite your wishes otherwise.
Everyone’s family is unique and many come with their own challenges. We recommend first having your estate documents reviewed to make sure they say what you think they say. Then review account titling and beneficiary designations on all your assets, to ensure the distribution of your estate is exactly how you wish it to be. If changes need to be made, discuss your goals and intentions in a clear manner with those trusted advisors helping you. Also, leaving a personal letter accompanying your legal documents may help your children better understand your wishes, rather than your family trying to learn legalese by reading your Will.
Despite our greatest efforts, wealth often goes to unexpected and unintended places. Devising these plans, and communicating them to your family, is a gift to them that will stay with them a long, long time. We can help you think through and implement all your best ideas for you and your family. Please reach out to the Allegiant Private Advisors team for assistance with estate planning.
240 South Pineapple Avenue, Suite 200
Sarasota, Florida 34236
Telephone (941) 365-3745
Toll Free (800) 926-5237
Advisory Services offered through Allegiant Private Advisors, LLC, a Registered Investment Adviser