As a parent, it can be really tough to sleep well when you're worried about your children's financial future, whether they're still kids or all grown up. This is why you should seriously consider making plans for what happens to your assets after you're gone. It's not something to take lightly. This planning is important because it makes sure that your things go to the right people and avoids family arguments when you're not around.
Here are some helpful tips for handling this kind of planning:
Talk Honestly with Your Children
It's common for children to underestimate or overestimate the value of their parent's estate. Having an open conversation with them not only lets them know what they might inherit, but it also eases their minds. It can also prevent arguments later on. This talk can uncover any concerns or issues that might cause family friction when you're gone. You also get a chance to explain your decision.
If you have several children, you are probably wondering if they should all get equal amounts. If you wish to minimize fights after your passing, it might be a good decision to give each an equal amount. This does not just mean in terms of assets, but also in matters concerning responsibilities. Under certain circumstances, it can be impossible to leave an equal share but focus on equitable inheritance. Equitable inheritance means each child receives a fair amount given his unique circumstances. For example, if your youngest child has yet to attend college while the others have already graduated from programs where you have footed the bill, you might allocate more money to youngest so they have the same educational opportunity. The same logic might apply if you have given one child money for a down payment on a house - instead of just dividing your assets, you could deduct the amount of the down payment from the that child's inheritance.
Handle the Distribution Yourself
One common mistake parents make is leaving their eldest child as the beneficiary and giving them the mandate to distribute the estate. Estate planning attorneys don't recommend this approach as it can cause conflict and hard feelings among family members. To negate and alleviate any fighting, do the distribution yourself. Plan out who gets what and how it should be shared by making a list of everything you have and who should get it.
Create a Trust
Often, people choose to leave their children's inheritance outright to them, either immediately or at a specific age, such as 25 or 30. However once your child receives their inheritance outright, it is legally considered their own property and will automatically become subject to creditors' claims, including to any spouse during a divorce. That is why many estate planning attorneys recommend you create a trust instead. It is possible to structure a trust in different ways or even to continue the trust for the child's entire lifetime. If drafted properly, then this lifetime "dynasty trust" will create an asset protection barrier between the child and the child's creditors. Trusts also keep your estate out of probate court, saving you (and your heirs) both time and money. In addition, trusts can minimize the amount paid in estate taxes.
No matter what you choose, it's a good idea to talk to a lawyer who specializes in estate planning. Remember, it's up to you to make sure your things go to the right people when you're no longer around.