This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Treating Children Equally in Estate Planning Is a Mistake

NEW YORK ( TheStreet) -- The most common refrain I hear when assisting clients with estate planning is that they want to treat their children equally. It's a parent's instinctual, default position. However, it can be a flawed position to lead from. In some cases, you might need to treat your children differently when it comes to gifting and estate planning. Notice I said differently but not unequally.

So what are some examples of treating your adult children differently:

  • Not naming all of your children as successor executors
  • Gifting the annual gift exclusion of $13,000 outright to some children while putting it in trust for another child
  • Leaving one child's inheritance outright while leaving another child's inheritance in trust
  • Thinking of your children as equals does not mean you shouldn't treat them differently in estate planning.

    In the first example, naming all your children as co-executors may seem like the right thing to do. However, I recommend selecting the child who is most capable and trust worthy of managing the responsibilities of the estate. Naming multiple co-executors is a recipe for disaster with your adult children behaving like school children. The goal should be to name the person most able to handle your estate affairs expeditiously and effectively. In some families that may mean naming a third party such as a trusted family friend, relative, or professional to be your executor.

    The second and third examples both point to one of your children having capacity issues -- i.e. special needs, creditor issues -- or possibly drug or alcohol problems. In any of these cases giving the money directly to your adult child is actually not in their best interests. For example, in the case of a special needs child leaving them money outright might jeopardize governmental benefits they currently receive. In this case proper financial planning involves seeing a competent estate planning attorney who specializes in creating special needs trusts.

    For adult children with creditor issues or substance abuse problems leaving them or gifting them money outright is not in their best interests, either. If an adult child with creditor issues inherits outright under the will their inheritance is fair game for creditors. What that means on a practical level is their bank accounts could be swept by creditors looking to recoup unpaid bills. The child with substance abuse issues certainly will not benefit from receiving an inheritance outright. In both of these cases leaving money via a trust is a better alternative.

    1 of 2

    Check Out Our Best Services for Investors

    Action Alerts PLUS

    Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

    Product Features:
    • $2.5+ million portfolio
    • Large-cap and dividend focus
    • Intraday trade alerts from Cramer
    Quant Ratings

    Access the tool that DOMINATES the Russell 2000 and the S&P 500.

    Product Features:
    • Buy, hold, or sell recommendations for over 4,300 stocks
    • Unlimited research reports on your favorite stocks
    • A custom stock screener
    Stocks Under $10

    David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

    Product Features:
    • Model portfolio
    • Stocks trading below $10
    • Intraday trade alerts
    14-Days Free
    Only $9.95
    14-Days Free
    To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
    Submit an article to us!
    SYM TRADE IT LAST %CHG
    AAPL $124.75 -1.13%
    FB $80.78 -1.86%
    GOOG $524.05 -1.83%
    TSLA $206.79 0.04%
    YHOO $44.45 -2.91%

    Markets

    DOW 17,826.30 -279.47 -1.54%
    S&P 500 2,081.18 -23.81 -1.13%
    NASDAQ 4,931.8150 -75.9760 -1.52%

    Partners Compare Online Brokers

    Free Reports

    Top Rated Stocks Top Rated Funds Top Rated ETFs