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Not All Children are Created Equal -- in Estate Planning, That Is


Parents try to treat their children as fairly and equally as possible. Any other way can lead to squabbling and tantrums by kids who think they've been shorted. When it comes to one of parents' biggest gifts to their children -- inheritance -- there are many reasons to treat children a little differently.

This can be hard to understand for parents because they love their children equally. But every child, even in adulthood, is different from his or her siblings. This is enough reason to treat children differently when it comes to estate planning.

For instance, it may be that one child is much more prepared to act as an executor. It is tempting to name every child as a co-executor, again as a sign of fair treatment and equal love. However, this can lead to family disputes over decisions that should be made quickly. Sometimes it makes more sense to name a family friend instead of a child so no one feels put out.

Additionally, some children may be ready to receive their inheritance outright if they are in a stable financial position. For others who are still minors or are struggling somehow, setting up a trust may be the logical option.

A trust is useful for children who are receiving government benefits or have significant debts. In such situations an inheritance may hurt them more than help, something no parent wants to do. The money may disqualify them from government assistance or would be only used to pay off creditors.

Grandchildren or third-generation beneficiaries should also be considered. Children with several children of their own may require different treatment too. Setting up college funds for their children is one option because many parents will pass on their inheritance to help kids in college.

Source: The Street, "Treating Children Equally in Estate Planning Is a Mistake," Michael Maye, May 11, 2012.