Dividing Assets in Your Will
Writing your Will and dividing your estate among your children can be a challenge. But even if the process is challenging, it’s vital that you do it.Kathy Longo, CFP®, CAP®, CDFA Monday, 16 September 2019
Only 1 in 5 Americans over 55 have a will/trust, healthcare directive, and durable power of attorney.[i] If the reason you haven’t done it is the difficulty of divvying up the assets, then the obvious answer would be to just divide everything up equally and call it a day--plenty of people do that. But there are other ways to divide an estate that may not be identical but may be of equal value. In this article, we will look at different ways to divide your assets in an equitable way to your next generation. Hopefully, this will help make writing your will easier and leave you with the peace of mind that you have created something fair for all of your children.
When It’s Best to Divide Up Equally
If all of your children have similar financial situations, it may be easier and make the most sense to divide your estate equally. If they all have roughly the same amount of education, income, and stability in their lives and are done paying for some larger expenses (like college, buying a house, or paying for a wedding) equal shares make sense. If all children have shown to be solid managers of money and are physically and emotionally able to care for themselves, then simply splitting the inheritance may be easiest for all involved.
If your wealth includes real estate or valuables, the challenge in dividing equally will be estimating each item’s relative value and then balancing out the difference for fairness. So, if one child is receiving the family home, then another may receive the monetary equivalent, and yet another may receive art or antiques to balance out.
Another reason to divide as evenly as possible is to avoid conflict. Conflict, in this case, could be emotional, or it could extend to hurt relationships and it could even lead to litigation. Contesting a will can tangle up your family and drain the estate in the process, often in legal fees. Much like giving each child equivalent gifts on holidays and birthdays, it may be easier to just divide things up as evenly as possible to avoid future conflict, regardless if you feel it is equally deserved. The good news is that contesting wills and going to court is actually rare, and 99% of the time the will passes probate.[ii]
When to Divide Differently
Another option is to divide the estate in a way that is considered equitable but not equal. This is becoming more common as 2/3rds of parents believe that in certain circumstances unequal is better.[iii] Let’s say you had a child who needed more financial support than the others for grad school, or a big wedding, or a down payment on a house. As you have given that child more money than the other children, it may make sense for them to receive less in your will. If you had a child who took on more of your care and it may have cost them lost wages, for example, you may want to leave them more as a thank you for the care and to balance what they lost out on from not working. Other scenarios involve a family business, where one child works at the business and another does not. If you have a blended family, with step-siblings or half-siblings, or children from second marriages who are significantly younger, all of these factors may change how you decide to distribute. You may also have a child with financial problems, or addictions, that cannot be trusted to receive an inheritance; it may make sense in a case like that to explore trusts with restrictions. If you have a child with a disability more funds may need to go toward their continued medical or specialty care; in cases like that, it’s recommended to set up a special needs trust to help manage the money and the care over time.
To avoid surprises or contesting of wills, it’s a good practice to discuss your end of life plans with your children while you are still alive. This will help to avoid disappointment or hurt feelings after you are gone and not able to explain your choices. Estate divisions can cause huge rifts in families and contesting wills and suing for more money can be costly to the estate and damaging to the family in the process. Two ways a child could sue would be to claim that you were manipulated into writing your will using “Undue Influence” and it does not reflect how you would have written it otherwise. Another claim would be a “Lack of Capacity” meaning you were mentally or physically unfit at the time of making or changing your will. If your will lacks a witness to say you signed it, they can even claim the document is fraudulent. You can image scenarios where things can become acrimonious and unpleasant very quickly. Better to be honest and frank with your children about your intentions when alive and able to smooth over any conflicts.
Get Professional Help
For this reason, it is best to draw up your will with an estate planning lawyer while you are of sound mind and body, without any of your children present. You can also set up a non-contestability clause, basically meaning anyone who contests the will is essentially forfeiting their inheritance. Other ways to prevent children from contesting a will involve using trusts to help a child who may be too young, or unable to manage the inheritance. You can also have your personal physician be your witness to counter any arguments of “Lack of Capacity”. You could exclude all children from the process of drafting the will to prevent arguments of “Undue Influence” and only tell them about it after it is signed.
It’s Your Will
When going through this process it is important to remember it is your money and you are entitled to divide it up (or not) however you like. What you must factor into your choice is your relationships with your children and theirs with each other. If you would like to create a will that leaves your legacy and relationships intact, best to work with a professional and do everything in a legally binding and equitable way. Once drafted, it’s important to be open with your children about the reasons for your decisions so they do not receive a surprise after you are gone. Ideally, you want them to walk away from the process feeling that it was fair and just and there is no reason to sue.
Another difficult consideration in drafting your will is that it effectively documents your mortality. It is common for people in their 40s, 50s, 60s and beyond to find this a difficult exercise when they are healthy and still have much to look forward to in life. However, we encourage clients to remember that drafting a will is an important effort to ensure your legacy is passed down to your children. It’s your will and you have control over how it is divided, as long as you make those decisions while you can because the outcome will be out of your control after death. Writing a will along with a healthcare directive and durable power of attorney are important steps to help your family.
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- The Challenges Faced by Women in Transition
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About the Author
Kathy Longo brings over 25 years of expertise and experience to Flourish Wealth Management. Kathy is wholly dedicated to improving the life of each client and finds joy in making complex matters simple and easy to understand. She excels at asking the right questions, uncovering new possibilities and implementing the most advantageous strategies for success. Playing such a pivotal role in her clients’ lives remains an honor and a privilege. After earning a degree in Financial Planning and Counseling from Purdue University, she began her career at a small firm in Palatine, Illinois where she worked directly with clients while learning to build a viable, client-centric business. Over the years, she gained extensive knowledge and wisdom working as a wealth manager, financial planner, firm manager and business owner at notable, various sized companies in both Chicago and Minneapolis.