By now, figuring that you have done serious thinking about your estate plan and intergenerational planning, you've done your basic wills, durable powers of attorney, living will and health care proxy. Perhaps you've implemented some trusts into your estate plan to further insure your assets go to whom you've decided best deserves them.
You've make provisions for any special needs, bequests, and provisions. It's all in place (it IS all in place, isn't it?) and put in the drawer with all the other important paperwork. You’ve made arrangements for your spouse, partner or parents to be taken care of, and if you are like most of us, your ultimate desire is for your kids to evenly get the remainder of the estate when the second spouse or partner is now gone.
Assuming you love all your children equally, your desire is to leave your estate to them equally as well. Will it actually work out that way? Let’s take a closer look...
Let's first look at the classification of your assets: are they qualified or non-qualified? Qualified means that the money is before tax money i.e. - IRA, 401(k), Tax Sheltered Annuity, Pension Plan money, etc. Non qualified means the money has already been taxed i.e.- savings accounts, investments, etc.
One of the common mistakes I see when folks come to me to review their plan is that the beneficiary designation in the qualified money is in contradiction with the instructions in the will. Now, this is big- pay attention- regardless of the instructions in your will, direct beneficiary designations on your IRA or qualified paperwork will always override your stated wishes in your will. Got that?
That means that regardless of what you said when you drafted your will in regard to who you care to leave your money to, when you filled out your IRA or pension paperwork you designated a beneficiary-that's who will get the money regardless of what you said in your will. Your beneficiaries named in your qualified paperwork MUST act in unison with your will, otherwise havoc may ensue. I've seen old IRA's that had a former spouse as the beneficiary, of which the owner never changed. Think about it...
Now, it's time to get even with your kids- but not in the way you are thinking. You've done the above, divided the estate equally, and all the kids or beneficiaries get their equal amount- or will they? For example, let's say you have 3 kids. You did your will, and ultimately, your wish is to leave it all evenly.
But, let's take a step back…what if during your lifetime, you helped one of the children financially. Perhaps it was an occupational pursuit, down payment for their first house, helping one with some bills... whatever the cause, you gave more to one over the others during your lifetime. The ultimate result is if the estate is split evenly between the three, including the money you laid out during your lifetime to one of the three, that child ends up with more than the others.
Is it fair? Regardless of what you may think, remember that you won't be here to explain why child one ended up more financially assisted than the other two. Nothing splits up a loving family like money issues, so here's how you solve this issue.
Amend your will to include a clause that says that before the estate is to be split up amongst the kids, all advances are to be taken into account. Keep a log as to all advances, and keep it with your will. Once you are gone and the estate is to be distributed, all advances will be construed as an advance against their portion of their inheritance.
Hence, upon the division and distribution of assets after you are gone, ultimately all children or beneficiaries will truly get their fair share. This will avoid having any of your children feeling slighted or less loved or assisted, and you will be remembered in a loving, fair memory. You don't want to be remembered as favoring one beneficiary over another, and since you won't be here to defend your actions, they will be perceived by your kids however they choose.
So, here's a way to "get even with your kids" in the ultimately loving way by treating them all equally... or just spend it all and party, party, party!