Creating or updating a will is an opportunity to be sure that your wishes are carried out after your passing. However, when you’re doing your new will, updating the terms of a trust, or checking on beneficiary designations, think about the larger picture, says a recent article from Kiplinger, “Is Your Will Actually Fair? Why Estate Planning Isn’t Just About the Math.”
Most adults worry about friction after their passing, and their concerns are very real, especially in blended families. Parents navigating asset distribution among biological children and stepchildren need to take extra care to avoid disinheriting their own children, while acknowledging their relationships with second spouses and stepchildren.
Whether your estate is being divided among children and grandchildren or between children, grandchildren, nieces, and nephews, it’s easy for things to get complicated. Even in the best of circumstances, dividing assets can create division among family members.
Let’s say you have a fixed number of assets to divide between three children, all of whom have different financial needs. One might be a successful software developer with a high salary and no children, and the others may be struggling teachers with two children each. Do you go for the equal split, or help the two families with lower income and higher expenses?
While it may make sense to divide your estate by need, there’s a compelling reason to go with the equal distribution. The reason is simple: money is seen as an expression of love. If the gifting is unequal, even when they understand the reasoning from a logical standpoint, feelings will be hurt.
Even personal possessions can carry a great deal of emotional weight. If all the children grew up playing piano in the family home and the piano is worth $8,000, how can it be fairly distributed? The piano could be gifted to one child, while the others could receive $8,000 in assets. However, this may not make them whole emotionally.
Other considerations for assets with unequal value:
The type of inherited asset matters. If one child inherits a traditional IRA worth $400,000, required distributions will increase their taxable income, and the money must be taken out within 10 years of the original owner’s death. If another child receives a $400,000 life insurance benefit, there are no taxes and no time limits. The two inheritances are not equal.
Beneficiary designations could unbalance asset distribution. Beneficiary designations override anything in the will. One of the most common occurrences is a failure to update beneficiary designations, which could leave a significant amount of wealth to an unintended recipient—such as an ex-spouse, an estranged family member, or a child who became disabled after the beneficiary designation was made —thereby putting their government benefits at risk.
A consultation with an estate planning attorney includes more than creating a will and trusts. Creating an estate plan involves discussing family dynamics, distinguishing between assets and planning for what will happen after the testator passes. Blended families or families where members don’t get along need more than a vanilla estate plan—they need the guidance of an estate planning attorney who has seen how families benefit—or are torn apart—when estate planning is done without experienced professional help.
Legacy One Law Firm, APLC is an estate planning and probate administration law firm in Los Angeles, California, serving families throughout the State. We help individuals and families establish living trusts, wills, powers of attorney, advance healthcare directives, and other essential estate planning documents designed to protect their loved ones and preserve their legacy. Schedule a quick and easy consultation with estate planning attorney Sedric E. Collins, Esq., or call 323-900-5450.
