You’ve heard the expression, “He who pays the piper calls the tune.” Other similar iterations are “He who rents the flat chooses the curtains,” or simply, “The money talks.” Regardless of your choice of expression, they boil down to one thing: when money is involved, the person holding it makes the determination of how to distribute it, both during life and at death. People often get flummoxed by their desire to be fair to their children in their estate plan, because throughout their lives the differing needs of their children have resulted in different treatment. However, beware of attempting to even the score through your estate plan.
If you have given one of your children a “loan” in the past, you know exactly the scenario. Perhaps you believe that you have given too much to one child and not enough to the other. Maybe you are considering treating money doled out as “advances” against one child’s inheritance. Although there may be very good reasons for offsetting an inheritance, it is important to fully consider the effects of doing so. If the child is unaware that funds received were intended as a loan or if the offset is included without explanation, it may cause resentment among the children. Such resentment can lead to dysfunctional family relationships and court battles, hardly the legacy you intended.
One method of preventing later discord may be to make the loan explicit at the time the money is given. If the lender is the trust, the borrowing child will inherit the note and cancel it. If the borrowing child repays all or part of the note, the offset will have a corresponding decrease automatically without requiring a trust amendment. Alternatively, it is possible to include a short explanation in the text of the trust itself in order to explain why one child will receive more from the trust estate than another child. In other words, by anticipating the possible tension, you may help alleviate it.
Similarly, if a child has been particularly helpful to you, then you may want to reward that child with something extra. There is frequently one family member who allows you to move in or drive you to medical appointments. Providing that child with some compensation feels justified. Indeed, it probably is justified! But again, without understanding the reasons for different treatment, children can feel hurt by the inequity.
The death of a parent is an very emotionally charged time. It is often shocking to see how quickly otherwise healthy family relationships can be derailed after a death. Because one of the primary goals in an estate plan is to ease the passage of property and the legal processes involved, carefully considering all aspects of your plan is vital to that goal. Although you are in charge of how the money is distributed, the recipient is in charge of how it is received. Unfortunately, in the absence of your voice, the money still talks.
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