Dividing up your estate among offspring can be tricky business. Remember what happened to Shakespeare's King Lear.
Seriously, there are many situations where the obvious option – an equal division of assets among children – is the right choice. But in some families, giving each child an identical inheritance might not make sense. As estate planning attorneys point out, there is a difference between leaving an equal inheritance, where each child receives the same amount, and an equitable inheritance, where each child receives what’s fair, given his or her circumstances.
So when does it make sense to leave each of your children the same inheritance, and when does a different arrangement make more sense? And how might each choice affect sibling harmony and whether your wishes are carried out as you intended? Read on.
When to Do Equal Amounts
If there are three children, an equal split obviously means each will get one-third of the remaining estate after both parents have passed away.
“It makes sense for each child to get the same inheritance when each child has similar needs and is similarly situated in life, each child has received similar support in the past from their parents, and each child is mentally and emotionally capable and responsible,” says Laura K. Meier, an estate planning attorney in Newport Beach, Calif., and the author of “Good Parents Worry, Great Parents Plan – Wills, Trusts, and Estate Planning for Families of Young Children.”
For example, if your children have all completed college (with you paying their tuition) and no longer rely on you for financial assistance; if no child has a handicap or serious illness; and if all have demonstrated that they’re responsible with money, it’s logical to divide your assets evenly among them.
If your bequests include real estate and other tangible assets, you will need to determine the dollar value of each asset and figure what makes the most sense to leave to each child. Consider the common situation where children are scattered across the country. “If one child always loved the primary house in Connecticut and still lives nearby, it could make sense to bequeath it to him or her,” says Eric Meermann, a certified financial planner and portfolio manager with Palisades Hudson Financial Group in Scarsdale, New York. Another child, who lives in Florida, could inherit the beach house in Boca. “Any differences in the values of the properties could be made up in cash or other assets,” he says.
There are also less pleasant reasons to leave an equal inheritance, even if you feel one or more of your children don’t deserve it: Doing so can help avoid the costs of conflict, both emotional and financial. Merely from a litigation standpoint, the best way to decide is to weigh the likelihood of a child dragging an estate through litigation, says Philip Ruce, an estate planning attorney with Stone Arch Law Office in Minneapolis. A lawsuit “is financially and emotionally draining for your family and for your estate,” he says, and will "cause some of your assets to end up in a different place than you had hoped – in lawyers' pockets.”
When to Do Different Amounts
Leaving each child an equal piece of the pie doesn’t always feel right. Perhaps one of your offspring is acting as your caregiver, and you want to reward him or her for that devotion or make compensation for lost time and wages, says Candice N. Aiston, an estate planning attorney with Aiston Law in Portland, Oregon.
Or perhaps you’ve given one child considerably more money during your lifetime than you’ve given to another, say, $50,000 for a wedding, grad school or a down payment on a house. In this scenario, if you would otherwise leave your two children equal inheritances of $200,000 apiece, you might instead leave $175,000 to the child you previously gifted money to and $225,000 to the child you didn’t. This distribution follows the equitable, not equal, guideline. (For more, check out "7 Reasons to Review or Revise Your Will" and "An Estate Planning Must: Update Your Beneficiaries.")
If you have a child who cannot care for him or herself, you may want to leave most of your estate to provide for that child’s care through a special needs trust, Aiston says. A disabled child may need income support to meet basic living expenses and funds to pay for ongoing medical needs. Siblings will likely understand such a situation and not be offended by receiving less money, but it’s still a good idea to let them know your plans, so there are no surprises after your death. (For related reading, see "Special Trusts for Special Needs.")
You might also decide to bequest disparate amounts when you have a blended family, and one child can expect to continue receiving support from another parent; when you run a family business and one child has a larger ownership share than another; or when one child is financially irresponsible, has an addiction you don’t want to support or otherwise doesn’t deserve or can’t be trusted with a windfall.
Aiston says the overall guideline should be promotion of family harmony. “It is unbelievable how many families fall apart after the parents die because of how the estate is divided up,” she says.
Could a Child Sue for More?
If you decide not to divide your assets equally among your children, understand that you’re putting your plans and your children at risk of going through a lawsuit. How significant is this risk, and how likely is it that the result will be a different division of assets than the one you desired?
“Children can always sue, but there generally needs to be a valid basis for a will contest,” says Jeffrey R. Gottlieb, an estate planning attorney in Palatine, Illinois. With careful estate planning, however, you can mitigate any challenge. The first step is to draft your will with the assistance of an estate planning attorney, while you’re of sound mind and memory, and without undue influence from one of your children. (For related reading, see "Do You Need an Estate Planning Lawyer?" and "How to Reduce Estate Planning Attorney Fees.")
“Undue influence” means that one of your other children believes – or at least thinks it can be proved in court – that you were manipulated during the process of creating your will. As a result, that child contends, you expressed wishes that you otherwise wouldn’t have or that weren’t really what you wanted. You won’t be there to defend yourself against such a claim, so you need to make sure no one can successfully argue it.
“Lack of capacity,” another way a will can be challenged, means that you didn’t understand what you were doing when you created or changed your will, perhaps because of your age or because a physical or mental illness had deteriorated your ability to make sound decisions. A child could also try to argue that your will isn’t valid because of fraud or because your signature wasn’t witnessed.
There are ways to minimize the chances of a less-favored child contesting your will in court, and ways to minimize their chances of winning if he or she does. “A no-contest clause paired with at least some nominal gift can create a disincentive to challenge,” Gottlieb says. The no-contest, or non-contestability clause, is, basically, language in your will stating that any inheritor who takes your will to court forfeits any bequests. That’s where the nominal gift comes in – for the clause to be effective, your child has to have something to lose. You’ll need to leave the less-favored child enough that he or she likely has more to gain by keeping quiet than by going to court.
It’s an unpalatable option, to be sure, but it might mean the best chance of keeping your will intact. The enforceability of these clauses varies by state, however, so check your state’s laws before considering this option.
Estate-planning experts say other ways to avoid challenges to your will include:
- Using a trust to provide structure for a child who might not be able to manage an inheritance responsibly on his or her own (Learn more in "Advanced Estate Planning: Using Trusts.")
- Having your doctor be a witness when you sign your will to invalidate claims of lack of capacity
- Excluding all children from the will-writing process to invalidate claims of undue influence
- Discussing your will with each child to avoid surprises and explain your reasoning
A lawsuit of this type is always most likely to end in a settlement, Ruce says, adding, “That settlement will in some way vary your estate plan because funds will likely end up in a different place or with a different person than you had hoped.”
The Bottom Line
“The most important thing to remember when dividing up an inheritance is that it is your money, and you have a right to do with it what you choose,” Ruce notes. That said, an equal inheritance makes the most sense when any gifts or financial support you’ve given your children throughout your life have been minimal or substantially equal, and when there isn't a situation where one child has provided most of the custodial care for an aging parent.
“When there is actual or perceived inequality,” Ruce says, “the likelihood of someone looking for legal remedies increases substantially.” You have to decide how significant that risk is given your children’s temperaments and their relationships with each other, and whether any risk in leaving an unequal inheritance is worth what you’re trying to accomplish. (For further reading, see "Tips for Family Wealth Transfers.")