Seldom are we able to anticipate and prepare for the future, even when we know that various aspects of the future will end up a certain way. For instance, we know that we will each die someday. Nonetheless, it is difficult to visualize the world without our self being a part of the world.
Therefore, estate planning can be difficult because it necessarily requires looking into the future to prepare for our financial and physical needs later in life, as well as where we want our possessions to end up when we pass away. As a result, clients often ask me, “What do other people do?” or “What do you think would work best for us?”
Obviously, each situation deserves specific attention, but as for the distribution of assets upon death, there are four primary thought structures to consider. Each structure is necessarily imprecise (despite use of the word “equal”) and is best used with other considerations to reach an ideal estate plan that reflects the estate planner’s values and goals.
First, some people use an “everybody equal” structure, which treats a parent’s kids equally. In other words, each child receives the same monetary amount when a parent dies.
This appears simple, but it becomes complicated when someone dies without children or when there is a blended family. Blended families can be particularly challenging to an everybody equal structure because it can result in situations where “his” kids get x amount, “her” kids get y amount and “their” kids get z amount. And, that outcome is obviously not equal. Further, equal is not always fair, and fair is not always equal.
Second, some people use an “equal opportunity” structure. This structure tries to ensure that each child (or other heir) has been given similar opportunity. This structure is often used when parents have a business or farm. The parents may have paid for some of their kids’ college education but not others’. This structure is one of the most amenable to use when trying to ensure that a family business or farm stays in the family in an economically viable situation.
Third, some people use a “who needs it most” structure. This structure works best when some heirs are incredibly well-off. In those circumstances, the very well-off heirs usually know that they neither need nor want a large inheritance.
The who needs it most structure merits particular caution, though, because our eyes can be deceived. Some people look rich but are poor, and vice versa. This structure also easily accommodates gifts to churches and religious groups, which I always recommend.
Fourth, some people use a “this one helped me the most” structure. If a parent lives with one child who cares for the parent’s needs in the parent’s later years, the parent may be inclined to give more to the child who provides that help.
This structure is often used by parents in disproportionately giving farm assets to the family members who helped the parents farm over several years or decades.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at [email protected] or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.