It’s amazing how siblings can be so different from one another. One can be very driven and end up being a successful physician, one can be more service-driven and decide to be a social worker, while another may be battling addiction and can’t hold a steady job. All three may have very different incomes and lifestyles.
Scenarios like these create difficult decisions in estate planning for parents grappling with wanting to treat their children fairly but also wanting to help those who need more. However, there are ways to approach estate planning that allow for children to receive different inheritances while keeping some semblance of equality.
Why Inheritances Are Unequal
There are many reasons why people may consider leaving unequal inheritances to their children. Sometimes, the siblings receiving less are understanding and supportive of their parents’ decision to help someone who is struggling. Unfortunately, unequal inheritances could also lead to feuding, which could then lead to costly and protracted court battles.
Some of the most common reasons why parents may allocate unequal inheritances among their children include:
- Special needs
- Legal issues
- Differences in earnings
- Differences in the cost to live in certain areas
- Gifts given during their lifetime
- A younger child who hasn’t completed their education or established a career
- A child providing caregiving
On those last points, a 2018 survey found that two-thirds of Americans 55 years old and older said that a child who provided them care is entitled to a larger inheritance than children who did not. However, more than three-fourths said that a child with his or her own children should not receive a larger inheritance than their childless siblings. In addition, 60% of survey respondents said stepchildren should receive the same inheritance as biological or adopted children.
But every family has its own dynamics and nuances. For instance, maybe the parents have grandchildren by some of their children, but not with others, which may result in unequal gifting during the parents lifetime. Or maybe the parent is cared for by one child more than the others resulting in their desire to leave more to that particular child.
Avoiding the Fight
The first and easiest measure to take to help siblings receiving unequal inheritances is to communicate with them. While these discussions might be difficult, they can help clear up misunderstandings before they fester into legal brawls. The next step is to clearly document the reasons for the unequal gifts in the trust or Will. Such a letter assures everyone is on the same page and understands that a conscious choice was made, not a mistake or a decision was made under pressure — as anyone who suspects the latter of those could contest the Will as invalid because of undue influence.
Next, consider alternative ways to give gifts that could level the inheritance playing field among beneficiaries. For example:
- Giving annual gifts to a child before death (just be aware of the cap on gift-giving in any given year to avoid triggering gift taxes as well as the implications on gift giving as it relates to Medicaid eligibility.)
- A child can be “compensated” for a service they provide.
- Support the child in other ways, such as paying for certain expenses or contributing to a grandchild’s college fund.
- Gift with other valuable assets, such as heirlooms, property, or a car.
If you have questions about ways to structure your trust and Will around unequal inheritances or would like to learn more about alternative gift giving, please call us at 856.782.8450 to schedule a consultation with one of our experienced estate law attorneys.