Equalizing Inheritances

This is going to be a conversation about trusts. Not a scholarly or legal discussion, just some thoughts on leaving assets to the next generation. It comes up often in conversation with Gen 1. FIRST and foremost, if you have more than one child, you will be more content setting up separate trusts for each of them. Each (adult) child has a different way of thinking about money, responsibility, spending, saving, and charitable giving.

You can be very creative when setting up the trust(s). One wealthy client with three grown children wanted me to help him equalize his children’s inheritance. Two of the children (Gen 2) were already wealthy in their own right and wanted their inheritances to go to their own children (Gen 3). The third child was a brilliant teacher and loved his work, but he didn’t earn a lot of money. Mom and Dad wanted him to have the same lovely house as his siblings, and wanted hisgrand children to go to the same private schools. They arranged his trust to make distributions during their lifetime.

Another client in a similar situation, that is, he had older children who were very comfortable financially, and younger children who led meaningful and fulfilling lives, but did not have the same lifestyle as their older siblings. Mom and Dad bought a home for one of the younger siblings with children of his own; however, they wanted this asset to always remain in their child’s ownership, particularly if there were ever a divorce. They adored their daughter-in-law, but nonetheless, it was important to keep this asset in the son’s name.  The trust offered that protection.

Often in a family business situation, there may be Gen 2 children who will inherit the business, but how do mom and dad equalize the inheritance to the non-business-owner children? There may be other liquid and non-liquid assets to divide among Gen 2, but the simplest answer is life insurance on the parent(s) lives. Of course, the business valuation may change over time, and adjustments made accordingly, but it’s a good start.

The client can start this conversation with his or her estate attorney, who will have some good advice and plenty of experience and expertise to draw upon.