When thinking through their estate plan and how they want their assets (money and property) managed after they pass away, most parents wish to treat their children equally, often out of a sense of fairness. However, sometimes being fair—or doing what feels right—may mean giving unequal inheritances.
Key Takeaways
- Treating children fairly does not always mean equal inheritances.
- How and when each child receives an inheritance may need to be customized.
- Not providing an outright inheritance is often a good choice, since assets left in a trust can be protected from irresponsible spending, divorce, creditors, and undue influence.
When Unequal Inheritances May Be Fair
There are many circumstances where unequal inheritances may make sense, including when:
- A parent has already given substantial support to one child during life, such as helping them purchase a home, forgiving a loan, or allowing them to live in a family property rent-free.
- One child has served as a caregiver or provided ongoing support for a parent.
- A child has contributed to the family business, while others have not. In this case, parents may want to leave the business to the child involved, and provide for the other children with other assets (such as life insurance).
- A child has special needs and will require additional resources and protection throughout their lifetime.
- Parents want to provide equally for their grandchildren, even if one child has more children than another.
In some cases, parents also choose to document repayment schedules during life if a child has received large advances or loans, so those amounts can be considered at death when dividing the estate.
Distribution of Inheritances May Also Vary
Parents must also decide how and when children should receive their inheritance. Options include:
- A lump sum distribution.
- Installments paid over time.
- Keeping assets in trust, allowing the trustee to make distributions for the child’s benefit without handing them full control.
These choices often depend on the size of the inheritance, the child’s age and financial responsibility, and the family’s circumstances.
What You Should Know
Many parents decide not to provide outright inheritances. Instead, they keep assets in a trust, with the trustee directed to make distributions under guidelines provided in the estate plan. This gives children ongoing support, while also protecting the inheritance from waste, creditors, lawsuits, or divorce.
Example: Frank and Jen have two sons who are stable and responsible with money. They will receive their inheritances in lump sums. Their daughter, however, has struggled with financial responsibility. To ensure she is cared for without risking misuse, Frank and Jen leave her share in a trust. This allows her to benefit from the inheritance without having full control.
Actions to Consider
- If you can afford it, consider giving your children part of their inheritance during your lifetime. This allows you to see them enjoy it, and gives insight into how they may handle a larger inheritance later.
- Consider whether your children should be your only beneficiaries, or whether you’d like to also provide for grandchildren, loved ones, charities, or even a family foundation.
At The Wagon Legacy, we help families carefully evaluate what “fairness” really means in the context of estate planning. Whether equal or unequal, the right approach ensures that your wishes are honored and your loved ones are cared for.