What, how, and to whom you leave your wealth can be a hard decision if you have more than one child. This is particularly true if your kids’ circumstances are dramatically different or you’re much closer to one than another. The easiest solution might be to split whatever you have equally among them. However, is equal the same thing as fair?
Ladders.com’s recent article, “More parents are leaving unequal inheritances to their adult kids” says that a growing number of parents say that answer is a resounding “no.”
According to a new study from Merrill Lynch Bank of America/Age Wave, responding parents with more than one child who are planning to leave an inheritance are okay leaving different sums to each child based on the situation. In fact, the research showed that 67% of Americans think that under certain circumstances, an uneven split is just fine.
Other studies have showed the same opinions. A 2015 study by IZA Institute for Labor Economics, based on data from a large government study, found that among Americans at least 50 years old who had a will, the percentage who left unequal inheritances to their children had more than doubled from 16% in 1995 to 35% in 2010. However, an unequal division can generate sibling resentment, fights, jealousy, and meltdowns.
An Ameriprise survey found that among siblings who fought about money as adults, 70% of the fights involved issues with parents (such as how the inheritance is divided). If you include unequal inheritances in your plan, you may wish to manage expectations so you don’t have one sibling blaming another for your decisions.
There are many reasons why parents consider another option. In the Merrill Lynch Bank of America/Age Wave study, nearly one in four respondents said a child who has children of her own deserves more money than a child who doesn’t have kids. About 66% said that a child who steps in as primary caregiver for an aging parent deserves to inherit more than other siblings. A total of 40% of participants with blended families say they should treat stepchildren the same as biological or adopted children.
Because of the potential different circumstances of each child, you may want to give one child money outright, and with another, you may want to put it in a trust. The reason for doing this is often to protect the child, not to punish them. If a child struggles with overspending or addiction, a trust can make certain that she has access to the money, but the trustee has control over its disbursement. In some cases, parents may also be concerned that a child’s marriage may be in trouble or feel uneasy about their son- or daughter-in-law.
Regardless of how you decide to distribute your assets, if you feel you have a sound rationale for not dividing it equally, it may be a good idea to tell the children what you’re doing and why. Explaining this can be very important to help avoid misunderstandings and hard feelings. Likewise, if you think a trust is best for one child, you may decide to use a trust for all of them to avoid conflicting impressions among the siblings after you’re gone.
Reference: Ladders.com (March 25, 2019) “More parents are leaving unequal inheritances to their adult kids”