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Treating All Beneficiaries Equally May Not Be Advisable

July 2016

Most couples or individuals assume that estate planning is simply giving assets equally to each of their beneficiaries. I recall a meeting with a married couple where the husband made it very clear that he thought they just needed to keep it simple and lawyers never make it simple. My response was that we need to clarify his goal. Did he want it simple for him now or simple in the event of his death? We could do nothing and that would achieve his goal. Of course it would possibly make things complex for his wife and very complex if they both passed in an accident. If they both passed, their entire estate would “simply” pass to their two children through probate. Given their businesses and assets that process would most likely take between one to two years but in the end the kids would get all the assets outright. Not so simple.

The reality is that every estate plan reflects the complexity of the individual or family, their goals and the assets that are owned. Some families have children that are receiving state/federal benefits that could be affected if they inherited assets. This requires specific planning that is very different from beneficiaries who do not have special needs. Some have children who, unfortunately, cannot manage their own assets much less an inheritance. For example, I have a client who is a single mother with two adult daughters. The younger daughter is an accountant living on her own and the older daughter still lives with my client with her two children. The mother has no doubt that if her older daughter received half of the assets she would spend everything within a year. In order to prevent this, she chose to set up trust that controlled the assets for the older daughter and even gave assets, in trust, to her grandchildren so they would receive funding for college.

One of the more difficult situations can be the family business or farm. If one child/beneficiary has been working the business or farm and the rest have all moved away or not been involved is it “fair” to pass on the business or farm equally to all the children or beneficiaries? Would the child/beneficiary be able to “buy out” the other beneficiaries? Given the current value of the business or land would that even be possible? Additionally, if several beneficiaries own the business or farm they are all equally entitled to the income/profit generated. Every time this situation comes up I advise clients that if you pass on the business or farm equally you are essentially putting all the beneficiaries in business together. They may get along fine now as siblings or relatives but that may not be the case when it comes to making business/farm decisions and substantial assets are at stake. The only solution in this case would be to pass assets to specific beneficiaries and in many cases it may not be equally distributed. In the end, however, this may be the only way to ensure that the family business or farm stays in the family.

Treating beneficiaries differently or unequally can be a difficult decision but it may be the only way to achieve your goals, protect your beneficiaries or continue the family business or farm.

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