Dear Liz: In a recent column you discussed the issue of fairness in gifting college funds to nieces and nephews. We have an issue closer to home in setting up our bequests to our grown children.
We have been giving our daughter financial assistance that we have not given our sons because we don’t feel they need it. Our daughter is in her mid-20s and has a learning disability. Our sons know we have been helping, but they don’t know the exact nature or value of the assistance.
We want to ensure that our daughter gets a larger inheritance to compensate for her disability, but how do we do that while being fair to the others? Our attorney helped us set up a family trust in which our three children will receive equal shares of the bulk of our estate.
At his suggestion, the special assistance will go to our daughter by naming her a sole beneficiary of one or more of our retirement accounts. Does this sound like a good plan?
Answer: Tread very, very carefully here.
There’s a fundamental difference between doling out assistance unequally while you’re alive and doing so once you’re dead.
While you’re alive, your sons are paying the “success tax” â€” not getting as much from you because they’re doing well. Many grown children in this position are able to accept the disparity because there’s an unspoken understanding that you would help them, too, if they fell on hard times.
Once you’re gone, though, there are no more opportunities for help. How you bequeath your estate is pretty much the last word, and your kids may very well see in your distributions a reflection of your love for them.
That’s why even minor inequalities in estate distribution can set off nasty, hugely emotional battles among heirs. These bad feelings can, unfortunately, translate into lifetime estrangements, which is surely not an outcome you’d want.
Of course, if your daughter’s disability is severe and will clearly affect her lifetime earning potential, then an unequal distribution may well be justified. You shouldn’t necessarily assume, however, that her disability will translate into failure. Plenty of successful people have overcome learning disabilities, including Virgin Atlantic Airways founder Richard Branson, inventor Thomas Edison, actress Whoopi Goldberg and artist Pablo Picasso.
You also can’t assume that your sons’ success will continue unabated. Accident, illness and business reversal can affect anyone, so that the child who seems like a highflier now could be the one who needs the most help in the future.
If you do decide on an unequal distribution, consider discussing your estate plans with your children.
This is probably a talk you’d rather avoid, but openness now will avoid an unpleasant shock later and give all concerned a chance to discuss their feelings about the situation. You may or may not hear something in this discussion to change your mind, but at least you’ve given your heirs a chance to be heard â€” an opportunity that’s obviously lost once you’re gone.