Dividing your estate - not your family

Having a Last Will and Testament to carry out your estate wishes is one of the smartest and easiest decisions you can make — at just about any point — in your lifetime. What’s not as simple, however, are the questions you have to answer in the process of creating that will. One particularly difficult question parents must answer is: How do I divide my estate among my children?

Conventional wisdom might dictate the simplest answer would be to divide your estate equally among your heirs. However, there are some unique situations with families that may justify an unequal division. These situations include:

• Special or medical needs. If one of your heirs has a medical issue or disability that requires future care and expenses, you may want to consider putting a larger portion of assets into a special needs trust (SNT). This would allow the child with the disability to get the supplemental income they need for medical or supervisory care without jeopardizing government assistance program benefits.
• Financial need. Many parents choose to base their giving decisions on each child’s level of financial success and earning potential, leaving more to the children with the greatest financial need. This can be a slippery slope, as children who have achieved higher success may feel they are being penalized for their success. Of course, there may be situations when the income disparity is extreme, and may very well warrant leaving a higher share to a particular child.
• Family business involvement. Another situation for an unequal inheritance among heirs is when some of the heirs are involved in a family business. In this case, it’s essential to factor in non-liquid assets and tax implications when making giving decisions.

Other strategies for dividing wealth

Three common strategies for dividing an inheritance include:

• Per stirpes. One of the simplest strategies for asset distribution among heirs, this method requires that the estate be divided equally among each branch of the family. So, if an heir (a child) should pass away before the parents, their share would be passed along in equal shares to their heirs (the grandchildren).
• Per capita. In contrast to per stirpes is the per capita — “divided by heads” — approach. In this method, each heir is given an equal share. That means if an heir should pass away before their parents, their heirs or children (the grandchildren) would receive the same amount as their aunts and uncles. This method could become problematic, as the children may not perceive it fair that their nieces and nephews receive the same share as them.
• Per capita by generation. Another approach is actually a combination of per stirpes and per capita called per capita by generation. In this approach, the second generation (the children) would be bequeathed what was promised to them. Their heirs or children (the grandchildren) would then receive an equal share of the portion that would have gone to the entire third generation, no matter their connection to the second generation.

Seek professional guidance

Given the importance of your estate planning decisions, I recommend you seek guidance from estate planning professionals, including your legal and financial advisors. They can help you address important estate planning issues, including choosing gifting strategies, guardians, executors, and distributions for children.

You also need to talk openly with another important group of people — your heirs. Though gifting decisions are yours to make, the repercussions will be felt by your family members long after you’re gone. For this reason, it’s vital to have frank discussions with all your heirs to ensure they know and understand your decisions.

More information

Working alongside a financial professional can help you navigate the future and reach your potential. To learn how our Wealth Advisors can help you, please call 1.877.670.5400, visit us online, or visit your nearest Citizens branch.