After seeing how inheritance issues have left my extended family with hurt feelings and relatives not talking to each other anymore, I concluded that adult children should be treated equally when it comes to an inheritance. I came across an article by Jean Chatzky a best-selling author and an award-winning personal finance journalist and thought I’d share it with you. Below are excerpts from her article. It opened my eyes. She quotes several experts in the field. I’ve added my own rebuttals below each of her 5 steps. I added a 6th step.
- Can you communicate openly? According to Detroit area elder law attorney Mark Accettura. “Estate planning is not a democratic process. It’s really the parent’s wishes,” he says. Parents should give kids a basic sense of where they stand financially — always noting that the situation can change if more money needs to be spent on their own medical care — as well as clear instructions about whom to contact and where important papers are kept.
Me: As someone who majored in Communications, I firmly believe it’s a miracle that any of us can understand what anybody says. Seriously. Yes, some of us are better at communicating than others, but you better be prepared for that good old “perspective” not to mention someone’s life experiences to throw you for a loop!
Here’s a test. Picture an apple. In fact, draw an apple and jot down all the details of your apple. Did you do that yet? Good! There are over 400 followers on this blog. Guess how many of you will have the same exact apple details? NOBODY! One of you will have a red apple, one of you will have a green apple, one of you will have a small apple, or a big apple, or a sliced apple, or a baked apple, or applesauce, etc. That test was our communication only about a simple apple.
Answer this question. How many families have open communication? Aren’t families notorious for having “family secrets”? Don’t get me wrong, open communication is a great idea. If you can accomplish it, you’re way ahead of the game. Also, I might add, do you feel comfortable about telling your children where you stand financially? Sorry, I don’t. I might as well post my assets on my blog. Haven’t we been brought up never to talk about “religion, politics, and money”? Now, nearing our deathbed (or not), we’re supposed to tell our kids about our assets? That’s like telling our kids what sex positions we like. Does my son know my basic financial worth? I think so. Who can remember? A better question is, “Does he give a flying leap?”
- Are you treating each child equally? One of the most frequently asked questions by anyone leaving an inheritance is whether they have to treat the kids equally. Experts say it certainly helps.
“If you want to minimize fighting, leave it as equal as you possibly can,” says Accettura. That applies not just to assets but also to responsibilities for settling your affairs. “When parents appoint responsibility they’re making a statement as to who is worthy, capable, who they trust. It’s a final statement and it’s irrevocable, so it’s important to be concerned about people’s feelings.” He suggests that anyone capable should at least have a small role.
Me: Ah, this is such a subtle thing, appointing responsibilities but Accettura really nails it on the head when he talks about “a parent’s statement as to who is worthy, capable, and who they trust.” How many parents take this into consideration? It seems minor, but it’s about as minor as a walk across a minefield.
- Did you leave the decision making up to one child? Leanna Hamill, a Boston-area estate planning attorney, has seen parents with, say, a $200,000 life insurance policy name their oldest child beneficiary and trust him (or her) to divvy it up among the siblings. Big mistake.
“If you want all siblings to inherit equally, put them all down as beneficiaries,” she says. If you have jewelry, art or other items to bequeath, leave a list of who gets what, along with a method for dividing up whatever is left so that people can take turns calmly.
Me: Suppose one of your children is a Financial Advisor. You should have that child be the beneficiary and trust him or her to divvy it up. Right? Big Mistake in my opinion! Put them all down as beneficiaries and follow the rest of the advice of Hamill.
- Are you distributing unequally based on what you think you know about your children’s assets? There are reasons parents do this — perhaps one child earns significantly more than another, and therefore needs less — but it can lead to resentment, which is why, Hamill says, many people avoid talking to their kids about inheritances in the first place. At the very least, write a note to go with the will, she says. “Leave something that says, ‘I love you all equally. Here is why I am doing the distributions the way I am.’”
Me: This goes back to #1. Communicating AND my two cents about perspective. Does the parent really know the income/savings of each child or are they guestimating? If you distribute unequally, maybe you better get copies of their income tax returns first! You might be surprised! And who’s to say that the child who has more doesn’t lose half of it in the stock market or housing crash, earthquake, flood, or whatever, 10 minutes before you die? All the more reason to distribute equally. The only exception I see to this rule would be if you gave money to one child while you were alive.
- A trust might eliminate some uncertainty. If you want to make sure your children use the money wisely, consider putting it in trust with a few strings attached. Many estate planning attorneys recommend distributing the assets in chunks (typically one-third at age 25, one-third at age 30 and one-third at age 35).
The thinking is that with maturity will come better financial decision-making. You can also include a provision that if your child is going through some sort of substance abuse problem at that time, the distribution can be held to a later date.
Me: Wow! They surprised me with the mention of a child having a substance abuse problem. What are the chances that the child will be substance-abuse free by age 35 or 40 or 50! Tough decisions, very tough decisions. Fodder for making the decision to have only one child or none! Or, spending it all on yourself or giving it away to charities! That’s not so far-fetched so I added a Step 6.
- Don’t leave your children anything. The singer Sting, formerly of The Police who is worth over $300 million, stated he would not be leaving an inheritance to his children. Other wealthy parents who share this point of view are Bill Gates, Warren Oats, and Nigella Lawson, just to mention a few.
Leaving and/or receiving an inheritance should be good for your mental and physical health, but it isn’t always the case. Sometimes it’s just the opposite. Proceed cautiously.