As a parent, it can be close to impossible to sleep soundly knowing that your children are not financially stable, whether they are toddlers or grown-ups. That is why you need to start thinking about estate planning, which should not be taken lightly. It is important because it prevents your assets from ending up with beneficiaries that were not intended and eliminates family conflicts when you are gone.
Here are some useful tips when handling estate planning.
Communicate Openly with Your Children
It is common that children underestimate or overestimate the total value of their parent’s estate. Talking to your children about your estate not only gives them a sense of how much they stand to get, but it gives them peace of mind. It also reduces family conflict when the time comes. Discussing inheritance with your children can bring up issues that might prevent the proper distribution of your assets. You also get a chance to explain your decision.
Level the Field
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.
Distribute Your Estate 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 alleviate any fighting, do the distribution yourself. Make a list of everything you own and indicate who actually gets what and the method to be used to distribute what is left.
Eliminate Uncertainties by Creating 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.
Regardless of what you choose, you'll want to discuss your plans and intentions with a good estate planning attorney. Remember, you are ultimately responsible for the successful transfer of your estate to your beneficiaries.
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