Where Inheritance Is Concerned, Equal May Not Be Fair

Posted by Mark Eghrari at Forbes

Even though determining how to pass on assets is not always clear cut, many people decide to simply divide assets equally among heirs. Yet in a number of different situations, “equal” may not be fair.

Say you pass away and have two kids, ages 25 and 16.

Your oldest child recently graduated from college, and his expenses totaled nearly $250,000.

At death your assets totaled $1 million.

If your assets will be distributed equally, your youngest child will be forced to pay for college using proceeds of his portion of the Trust, while the older child did not.

After college expenses, the younger child will be left with $250,000 while the older child will have $500,000.

While you have distributed your assets equally, you may not think equal is particularly fair. (Or you might; only you can decide what is fair.)

The same inequalities in distribution can occur if you own a home, a business, or other sizable assets.

A great way to avoid the “inequality problem” is to create an Irrevocable Trust holding assets that will not be divided equally until, in this case, all your children have completed college.

Or you could decide the Trust will not be divided until your children have embarked on their own careers and life journeys, only making distributions when they near retirement age.

In fact, you could choose to “never” distribute assets by naming a child the trustee of the Trust at a certain age, with the power to make distributions to him or herself without inheriting the entire estate and paying estate taxes.

Sound complicated?

This type of estate planning can be – especially if you do not plan ahead and take into account various scenarios and contingencies.

The beauty of an Irrevocable Trust is that it allows you to plan for the specific needs of your family. Plus, a Trust can provide asset protection.

For example, by not distributing assets immediately, a child who gets divorced receives “divorce protection” from having assets in Trust, even if the child is the trustee.

Under the right circumstances, a Trust can also provide protection from creditors and lawsuits.

The key is to consider your intentions for your assets in a general way:  Whether to provide for education, for ongoing support, for a nest egg that will only be tapped in emergencies, etc.

Once you determine your broad intentions, an estate plan can be crafted to ensure those intentions are carried out... regardless of what the future may bring.

Posted by: The Trust Advisor

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