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A family is a happy unit consisting of the parents, children, and grandchildren. Parents bring up their children by teaching them about the world and when the children are grown up and perform well in their fields they feel very proud. But there are certain areas where the parents themselves are not sure if they are doing the right thing. It is the passing on wealth to the children. There is no formula to decide which child should get how much wealth. By following some of the mentioned ideas parents can try for fair distribution of wealth among children.
The easiest way for the parents is to divide the wealth equally among their children thinking that it is the right and fairway.
There are times when disparate treatment would be right. When a child is differently-abled, they are already disadvantaged and may require support to come up in life. The needs of a differently-abled child are different and may require high critical care costs and provisions of a lifetime of support. Appoint a legal guardian who would work for your child’s interest when you are no longer there and make an informed decision on their behalf. While appointing a guardian consult a lawyer and draft a legally valid agreement. You can also create a trust or an institution such as a bank as a trustee. They would most likely be honest as they have a reputation to maintain. Communication about your decision is important to let the other children see the circumstances as to why there is not an equal split.
A person may think that he is being fair by giving his children an equal inheritance. But sometimes they might have paid for the down payment of the house of the first child and given money to the second child for establishing his business; while the third child has done well all along and based on his capability secured a good job after graduating from a university and has not required any financial assistance. The person can discuss his idea of fairness with his children and can factor in the lifetime gifts he has given to his children. He can decrease the inheritance of the first and second children as he has supported them in the down payment of their home and support in the business to ensure that there is an equal distribution among his three children.
There are situations where the parents can leave more inheritance for the child who has been a caregiver in their old age. The child may be living with the parents or maybe staying nearby and helping them on a daily basis like looking after their healthcare needs, paying bills, searching for housecare help, or any other need of their parents. The caregiver-child is often given more inheritance than the other children.
The parents may have a bias toward their children like liking an obedient child over the obstinate one or backing a successful child over an average one. The bias toward gender is also seen in this context. Parents often feel that the boys would look after them in their old age but evidence shows that the parents with girl children have a better chance of being cared for in old age. It is therefore appropriate that the parents should not see the expenses on their children as investments.
There are cases where parents own property with one of the children. This leaves the other child who is not the joint owner of the property at a disadvantage.
In a simple family when a person dies and does not leave a will the law distributes the estate and other assets equally among the children following the equal distribution norm. However, in a family that is complex and has stepchildren, any intestacy leads to different distribution among the children. The stepchildren inherit nothing when a stepparent dies if there is no will.
The ideal time for receiving the wealth of your children is not always after your death. If you happen to live till your 90s the children would be in their seventies and sixties. They also would be near their death and the benefits of such wealth transfer would not be much useful. The wealth transfer should be there when money is needed the most.
It is better to sit with the child and know about their preferences. If you have a vacation home in the mountains and one of the children loves beaches more, leaving more cash with the child who loves beaches is just fine. You can leave the vacation home in the mountains to the child who loves to vacation there and the appraised value of the mountain house in cash to the other child.
Now suppose you have a child who is involved in the business for decades and has put all his efforts to make the business more successful. Would it be fair to split the value of the business with the other kids equally when they are not involved in the business and have not put much of their efforts? It would be much better to split the other assets among the remaining children rather than splitting the value of the company. The other children should be allowed to join the business but it is not the fault of the child who is in the business and can’t be penalized for the decisions of siblings to have other careers.
When dividing the assets among children it is always better to take the tax impacts into consideration that may put one of the children at a disadvantage. You may intend to equally divide your assets but the tax rules may throw the equilibrium off balance.
Grandparents love their grandchildren more than they would have even cared for their children. They are very fond of them. Let your children take care of them and stop worrying about their financial future. You can step in to provide financial help if your child has lost the job and has not found a new job for a long time.
Suppose you have a child who is a spendthrift and you don’t wish your child to blow away all the inheritance money at one go. You can purchase annuities from an insurance company and can direct the money to your child at regular intervals depending on the investment amount and the premium involved. The same thing applies if one of your children is an alcoholic and you don’t wish to hand over all the money to be blown away soon. The other alternative is to set up a trust for the child, but this involves legal fees.
There are feelings involved in the distribution of wealth and there is no mathematical formula for division in a fair manner. A person may be worried about the future of their children or the situation now. Behind the decision for an equal split among the children is the reason for conflict among the children. You may provide financial benefits to your children when you are alive depending on their situation and later split the remaining money among them.
Sit with your children, do proper communication and explain to them why you took a particular decision. This would most likely remove the feeling of resentment when you are no longer there. When the children inform you of their concerns it would lead to better decision making and would lead to harmony in your family after your death. It is certainly possible to ensure fair distribution of wealth among children.