Fair Shares to Your Heirs
STRATEGIES FOR ADJUSTING INHERITANCES TO ACCOUNT FOR PAST FINANCIAL ASSISTANCE
Since they were children, you’ve done your best to be fair. Now, you are looking at your estate planning and desire to leave a fair and equitable inheritance among your heirs. But achieving that can be a complex matter. Today, we’ll explore strategies for adjusting inheritances to ensure fairness and harmony.
Estrangement and other family dynamics can complicate estate planning. Also, if you’ve previously given greater assistance to certain family members, this may be something other heirs would expect to be adjusted for when it comes to allocating inheritance. To whom and what amount you leave of your wealth is always your decision. But these are factors to consider and there may be other special circumstances for your situation. Our discussion today involves steps you can take to ensure fairness in your estate plan, including adjusting, if necessary, to maintain family harmony and fulfill your legacy intentions.
Assess Past Financial Assistance
Should you wish to consider adjustments to your estate planning for more equitable distribution, start by thoroughly assessing the financial assistance you’ve provided to family members over the years. This includes gifts, loans, educational expenses, and other forms of support. Document these contributions clearly, noting the amount and purpose of each.
Equalize Inheritances
After your calculations, consider adjusting inheritances to account for past financial support. For example, if one child received significant financial assistance, you might allocate a smaller portion of the estate to them compared to siblings who received less support. This can be explicitly stated in your will or trust documents.
Consider Life Insurance Policies
One way you can easily adjust your estate planning for better equalization is through life insurance policies. You can designate beneficiaries in a way that compensates for past financial assistance, ensuring each family member receives a fair share of your total legacy.
Communicate with Your Family
If you have reviewed your previous support and determined to adjust, it’s a good idea be transparent in your communication and let all affected family members know of your intentions about how past financial assistance will be factored into your estate plan. This openness helps manage expectations and prevents potential conflicts after your passing.
Use Formal Agreements for Future Assistance
You’ve decided to adjust your estate plan for some prior financial assistance to certain family members. So, how will you handle the need should it arise or your desire to provide future financial assistance to specific heirs? You might consider using formal agreements like promissory notes or loan documents. These types of agreements provide clarity and documentation that can be factored into the estate plan accordingly.
Five Tips for Updating Existing Estate Documents
Having made your decisions about where and how much to adjust your estate plan for greater equality, here are five things to consider when updating your existing documents to reflect those adjustments.
#1 Review and Amend Your Estate Documents
Review your current estate documents, including your will, trusts, and any beneficiary designations. Work with your estate planning attorney to amend these documents to reflect the adjustments for prior financial assistance.
#2 Update Trust Provisions
If you have a trust, update its provisions to account for past financial assistance. This might include specific clauses that outline the contributions made and how they should impact the distribution of the remaining assets.
#3 Consider a Letter of Instruction
Even if you’ve stated your intentions verbally about adjusting your estate plan, consider writing a letter of instruction to accompany your will or trust. This letter can provide context and details about your decisions, explaining how and why you adjusted inheritances to account for past financial assistance. While not legally binding, it offers a reminder of what you may have previously expressed, clarity, and understanding for your heirs.
#4 Establish Clear Record-Keeping
Maintain clear and organized records of all financial assistance provided to family members. This documentation should be easily accessible to your executor or trustee to ensure they can accurately carry out your wishes.
#5 Reassess Regularly
Lastly, regularly reassess your estate plan to ensure it remains aligned with your current financial situation and family dynamics. Life changes, such as marriages, births, or additional financial assistance, should prompt a review and potential update of your plan.
As you can see, adjusting inheritances to account for past financial assistance is a thoughtful approach to ensuring fairness and preventing family disputes. By clearly documenting contributions, communicating openly with your family, and updating your estate plan accordingly, you can create a balanced and harmonious legacy.
Thank you for reading our blog. Remember, we believe you can have a flexible life plan to achieve more of what you love: more financial confidence, more for your family, more freedom, and more choices.
Chris Zeches is a Certified Financial Planner® and Managing Partner at Zeches Wealth Management. Zeches Wealth Management has one singular focus: To use our financial planning and tax expertise to help multi-generational families and business owners achieve more of what they love.
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