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A Guide to Dividing Your Estate Unequally Thumbnail

A Guide to Dividing Your Estate Unequally

Daniel Goott, CFP, CIMA - Principal

Dividing your estate among family members can be complex and at times, challenging. Nevertheless, not having a will may lead to complications and is ultimately irresponsible. Quite often, equally dividing assets among children makes the most sense. However, there may be circumstances in which giving each child an identical inheritance might not be the best decision.

Keep in mind the distinction between leaving an equal inheritance, in which each child receives an identical amount, and an equitable inheritance, in which each child receives what is appropriate, considering all the factors. Such a distinction may help you decide what’s best for you and your family. The choices you make can affect sibling harmony as well as whether your intentions are executed as you intended.

Equal Distribution

When each of your children has similar lifestyle needs, received similar support in the past from their parents, or other family members, and is mentally and emotionally responsible, it may make sense for each child to receive an equal inheritance.

If your legacy involves real estate or other tangible assets, you will need to determine a dollar amount for each and decide what makes the most sense to leave for each child. Location may also be a deciding factor in whether a child receives a home, for example. If one child lives nearby and has always enjoyed that house, it could make the most sense to leave it to him or her. Any differences in values of properties could be adjusted by leaving cash or other assets to the other heirs.

Less pleasantly, you may decide to leave an equal inheritance to your children to avoid emotional and/or financial conflict. One way to decide who receives what may be to weigh the likelihood of a child causing litigation of the estate. If that becomes the case, your assets may end up being passed along differently than how you originally intended.

Leaving Varying Amounts

Equally distributing your assets to your children may not always be the best option or feel right. For example, one of your children may be acting as your caregiver and you feel he should be rewarded for his time and effort. Alternatively, one child may have received more throughout her lifetime than another – whether it was her wedding, grad school, or a down payment on a house. In this case, it may be advisable to leave an equal inheritance to your other children and a smaller amount to the child to whom you previously gifted money. This would fall in the equitable-not-equal guideline of distribution.

If you have a child who is unable to care for himself, you may opt to leave a portion of your estate to provide for that child’s care through a special needs trust. A disabled child may need support to meet living expenses and medical needs that his siblings are likely to understand.

There are a number of circumstances in which you may consider leaving different amounts to your children. With a blended family, you may have one child who can expect to receive support from another parent; or perhaps you run a family business and one child owns a larger share than others; alternatively, you may have a financially irresponsible child or simply one who can’t be trusted with an inheritance.

Regardless of the division of assets, it’s always important to communicate your intentions to all those involved so that your requests are clear and there are no surprises.

How to Protect Your Estate

By leaving unequal amounts to your children, you put yourself at a higher risk of their being unhappy or unsettled with the decision. To minimize the chances of one of your children contesting your will in court, as well as minimizing their chances of winning if they do, there are a few options available to you.

First, a non-contestability clause states within your will that any inheritor who takes your will to court forfeits any bequests. For the clause to be effective, your child has to have something to lose and you’ll need to leave him or her enough that they likely have more to gain by accepting the outcome than by going to court.1

This may not be your most favorable option but it may offer the best chance of keeping your will intact. This type of clause varies by state so it’s important to check your state’s laws before considering this route.

Other ways to avoid challenges with your will include:

  • Having your doctor as a witness when you sign your will to refute any claims of lack of capacity.
  • Excluding each of your children from the will-writing process to invalidate claims of undue influence.
  • Discussing your will with each child to explain your reasoning and avoid surprises.2

If a lawsuit does arise regarding your estate, it may end in a costly settlement that will alter your estate plan. Funds will likely end up in a different place or with a different person than you had originally proposed.

The Bottom Line

Regardless of how, and to whom, you leave your inheritance, it’s important to keep in mind that it is your wealth and you have the right to do with it what you choose. That being said, whether you leave an equal or equitable inheritance to your children should depend on your existing relationship, the lifestyles they have led, their circumstances, and the previous support they have received. If perceived inequality takes place because of uneven distribution of your assets, the likelihood of legal challenges increases. It’s up to you to decide how significant that risk may be.

Planning your estate carefully may not be easy, but it is important to do so. It’s also important to meet with a knowledgeable and trusted advisor should you have questions or concerns about creating your will and the options available to you along the way. While we are not lawyers and this is not intended as legal advice, you may wish to discuss your plans with your Investec advisor. We're here to help. Let's talk.

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  1. https://www.nolo.com/legal-encyclopedia/no-contest-clauses-wills-trusts.html
  2. https://www.elderlawanswers.com/preventing-a-will-contest-6627

Disclaimer: The information provided here is general and intended as educational in nature. It is not intended nor should it be considered as tax, accounting, or legal advice. Investec Wealth Strategies and its advisors do not provide tax, accounting, or legal advice. We recommend you seek the counsel of your attorney, accountant or other qualified tax advisor concerning your situation.