Estate planning clients, typically those nearing or beyond retirement, often ask what kind of information they should share during life with the beneficiaries of their estate. If one child will be treated differently than others, how should they address it, if at all? Should they disclose the fact that an inheritance is likely? (Research shows significantly fewer people expect an inheritance compared to those who receive one). What if the inheritance is expected to be large? Depending on the circumstances, advance discussions among the family are often the best way to ensure family harmony.
Many estate planning attorneys have had occasion to tell clients that “fair does not always mean equal.” Some clients have family circumstances that cause them to leave a majority, even most, of their estate to only one child. Perhaps one child has special needs that require more specific, and preferential, planning. Sometimes parents favor a child who has not been materially successful in life, at least compared to their relatively comfortable siblings. Sometimes one child has received substantial property during the parents’ lifetime, such that no portion of the estate will be left to them. Regardless of the reason, if one child will receive little or nothing from one’s estate, if practical, this fact should be relayed to that child in advance.
Some clients ask if they should discuss the value of their estate with those who will receive it. Data compiled by the Federal Reserve Board shows that over half of any given inheritance totals $50,000 or less, and over eighty percent of inheritances are below $250,000. Research has shown that only half of what one inherits is used to invest or pay down debt; the balance is spent, lost in investments, or donated. Regardless of the size, many clients expect the beneficiaries of their estate to preserve inherited funds and use them wisely. To realize that expectation, families should work together and implement a plan that prepares beneficiaries to be good stewards of their inheritance. The plan might be as simple as a few conversations about saving and investing. It might include meeting with the parents’ investment advisor or encouraging children to establish a relationship with an investment advisor of their own.
For families who have larger estates to pass on, annual gifting can be a good way to acclimate adult children to the eventual receipt of a substantial sum of money or assets (i.e. a “windfall” – defined by Merriam-Webster as “an unexpected, unearned, or sudden gain or advantage”). Annual gifting can also be a method to foster good habits and temper the “easy come, easy go” attitude that often drives clients’ concerns. Of course, much of what a client decides to disclose and the behavior they want to encourage is driven by personal values, family dynamics and specific concerns, things which the estate planning attorney can learn about while crafting or reviewing the estate plan.
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