A while back, I wrote an article that focused on some of the reasons clients give for deciding to treat their children differently in their Wills and why. In my experience, those reasons were usually not worth the problems that arose from those decisions (i.e Will contests, damaged family relationships, etc.). I called that piece Five (Not So Good) Reasons to Treat your Children Differently in your Estate Plan. However, there are in fact some good reasons for treating some children differently. Here are five circumstances in which it is prudent to consider treating a child differently than his or her siblings.
- A child with disabilities is receiving needs-based governmental benefits. Parents of a child who has special needs such as autism, Down syndrome, or other disability that makes it unlikely the child will ever be self-supporting must take care to ensure that their child is cared for following their deaths. Individuals with disabilities may be entitled to receive governmental benefits to pay for food, shelter, medical care or other expenses. Many of these benefits are available only if the individual with disabilities meets certain financial criteria, which may include a limitation on the amount or type of assets the person owns. Leaving an inheritance directly to a child with disabilities is likely to cause the child to be ineligible for benefits. However, parents can leave assets to a child with disabilities in a so-called Special Needs Trust or Supplemental Needs Trust to provide for their child without interfering with the child’s eligibility for needs-based governmental benefits such as SSI and Medicaid.
- A child has a mental illness that affects his ability to manage money. If a child is bi-polar or suffers from another mental illness that interferes with his ability to manage money in a mature manner, it is important that parents safeguard that child’s share of the estate. Creating a trust that provides for the prudent management of assets for the child is an excellent way to do so. In the Trust document the parents will name a Trustee to manage the trust assets for the child at the parents’ deaths. That Trustee might be a family member, family friend or professional such as an attorney, CPA, bank or trust company. Although the Trustee does not need to be a professional money manager, the Trustee does need to be someone who is responsible and trustworthy and who will seek the advice of professionals in managing the Trust assets.
- A child has an addiction disorder. If a child is addicted to drugs, alcohol, or gambling, it is imperative that parents take this into consideration when planning their estate. Leaving even a modest inheritance to a child who may injure himself with a drug overdose or lose their legacy in a gambling spree is not how any parent wants a child’s inheritance to be used. Setting up a trust to manage the child’s assets is an excellent way to provide for a child who has an addiction disorder while safeguarding the inheritance.
- Your child is in the midst of a situation that would jeopardize his inheritance such a divorce or bankruptcy. Sometimes a child’s situation is precarious but temporary, such as a divorce, bankruptcy or lawsuit. These are circumstances that will eventually be resolved and assuming they are not chronic, parents would otherwise want to leave their assets outright to the child rather than in trust. However, while these circumstances exist, protecting the child’s share from the reach of a divorcing spouse or loss to a creditor is crucial. Parents can change the terms of their estate plan to address the crisis and then revise the plan once the child’s situation is resolved.
- Your child is a spendthrift. This is a tricky one. Although some parents disapprove of their children’s spending habits, this does not necessarily mean that the children are spendthrifts in the true sense of the word. Wikipedia defines a spendthrift as “someone who spends money prodigiously and who is extravagant and recklessly wasteful, often to a point where the spending climbs well beyond her or his means.” The key here is that the person spends well beyond her means. So where one person may consider a weekly massage an extravagance, another may deem it a necessity. For estate planning purposes the issue is not so much how your child spends her money, but whether she can afford to spend the money she spends. If your child has filed for bankruptcy (perhaps more than once) because of overspending (as opposed to as a result of a medical problem, for example), has lost, or almost lost her home to foreclosure, or is often short of money to pay the rent, mortgage or electric bill, yet still takes the children to Disney every year or treats herself to a Mediterranean cruise, she might be a spendthrift. Parents of a spendthrift child are often conflicted – they love their child and do not want to exclude her as a beneficiary. On the other hand, they find it painful to think about leaving a spendthrift child any part of the estate they worked so hard to build when they believe it will be squandered. Estate planning to ensure that a spendthrift child does not receive a lump sum distribution may include creating a trust for the child’s share or providing that the child receive a monthly income rather than an outright distribution.
A parent’s decision to treat children differently should never be made lightly. Treating children differently in one’s estate plan not only significantly increases the likelihood of a Will contest, it often causes a serious, and sometimes irreparable, breach in sibling relationships after the parents have passed away. However, there are circumstances, such as those described above, when it is necessary to do so. If you have a child in any of the circumstances described above or if you are considering treating one of your children differently than the others in your estate plan, consult with an experienced estate planning attorney to determine the best way to structure your plan.
Attorney Suzanne R. Sayward is certified as an Elder Law Attorney by the National Elder Law Foundation. She is a partner with the Dedham firm of Samuel, Sayward & Baler LLC. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.