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Being fair in estate planning

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Jet Chen Tan

Q. I’m planning to redo my estate plan to make sure my adult kids are treated fairly. One has never been good with money and I have often helped, while the other is completely independent, so she’s technically losing out on money. What can I do to make sure the responsible one gets her fair share when I die?
— Mom

A. We’ve heard this one before. You have a bunch of options.

There is no easy answer to the question of what is fair, said Andrew Novick, a certified financial planner and estate planning attorney with The Investment Connection and Brookner Law Offices in Bridgewater.

Novick said according to the Merriam-Webster dictionary, one definition of fair is “marked by impartiality and honesty: free from self-interest, prejudice, or favoritism.”

He said treating each people equally can certainly be fair, but unequal treatment can also be fair.

Take the example of how a parent treats a minor or young adult child.

“Sometimes a parent simply needs to spend more on one child. The reason why can be clear, such if one child has a disability or serious illness,” Novick said. “It’s fuzzier when one child participated in more costly school-age activities, attended a more expensive college, or planned a more expensive wedding than the other children.”

He said as long as each child was given equal opportunities, the unequal financial support may not be a problem.

Still, some parents feel it is important to keep everything as equal as possible. For instance, imagine one family set aside the same amount for college for each child. If college cost more than was saved, it may be up to the student to finance the rest. If college cost less, the child got to keep the remaining balance to use however the child saw fit, Novick said.

Providing continued parental support becomes somewhat trickier when a child becomes an adult. It’s important to consider why the adult child is having financial problems. Is it because of poor work habits, a gambling or drug addiction, a divorce, or a disability? There are many situations and each needs to be evaluated and handled differently depending on the family dynamic, Novick said.

Parents who feels fair means equal can make lifetime gifts to equalize any financial support provided to other children, Novick said.

Whether the other children need the support is moot if it’s all about being equal, he said.

“Alternatively, and probably more typical, is to include a provision in the parent’s will that reduces each child’s inheritance by any significant and/or cumulative lifetime gifts,” Novick said. “With this approach, the combined amount received from the parent’s lifetime gifts and inheritance at death will be equal.”

Even in situations where there are no significant lifetime gifts to any child, it does not always make sense for each child to get the same inheritance.

Novick said he always asks his estate planning clients how they want to leave their estate to their children.

“Most parents assume their children should inherit equally, but this assumes that each child has similar needs, is similarly situated in life, received similar support in the past from their parents, and is generally a responsible and capable adult,” he said. “If this is not the case, an unequal inheritance may be fair.”

He offered these examples:

* You may want to leave more to your son who struggles to support a large family on a modest teacher’s salary than to your daughter who is a successful professional, married into a wealthy family, and has chosen not to have children.

* You may want to compensate a child who has given up part of his/her own life to care for you when you were ill and/or elderly. Perhaps you even moved into your child’s home in your later years.

* You may have a much younger child who will need care longer than your older children.

* You may have a disabled special needs child or grandchild who will need care and more financial support for his/her lifetime.

* You may have one child who is enjoying financial success working for the family business, while other children have not.

Providing additional financial support to one adult child over another through the will should be within a parent’s discretion, Novick said. If this is the case, he said he generally tells parents to let each child know the plans so there are no surprises at your death.

Ideally, the other adult children will not feel aggrieved if they understand your reasoning, he said.

“Problems can still arise, however, when there is clear favoritism or if your children don’t agree with the unequal treatment,” he said. “Children can always sue, but there generally needs to be a valid basis for a will contest, such as undue influence.”

Novick said it’s important to remember that if you die without a will, state law controls how your assets pass. In New Jersey, (NJSA 3B:5), a single parent’s estate will be split equally between any children.

So for situations where equal isn’t desired, it is important to set forth your wishes in a will and make sure to get advice from a qualified estate attorney on how minimize any bad feelings between siblings or a lawsuit later, Novick said.

Email your questions to Ask@NJMoneyHelp.


Karin Price Mueller writes the Bamboozled column for The Star-Ledger and she’s the founder of NJMoneyHelp.com. Click here to sign up for the NJMoneyHelp.com weekly e-newsletter. Like NJMoneyHelp.com on Facebook and follow it on Twitter.

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