Parents generally try to treat all their children fairly. We often assume that fairness means leaving an equal inheritance to each child. However, when it comes to an estate plan “fair” does not always mean “equal.” A thoughtful estate plan considers each child’s unique circumstances to create distributions that truly support their needs.

Situations of  “Unequal” but “Fair” Distributions

• One child has a high-paying career while another struggles financially. You may want to provide more financial support to the child with the most need.
• One child may have sacrificed their own time and energy to become your primary caregiver. It may be fair to compensate them for the care they have provided.
• You have children with different needs, for example, a young child who still needs care for many years or a child with special needs who will require lifelong support.
• You have one child who wants to take over the family business. You can leave the business to that child instead of making all your children equal owners, which can cause conflict, and use other assets (such as a home, an investment account, or a life insurance policy) to provide a fair inheritance for your other children.

When and How Your Children Receive Their Inheritance

Inheritance planning is not just about how much each child gets but also about when and how they receive their inheritance. These decisions can be different for each of your children, and they are something you should carefully consider.

• Lump sums. For older children with a proven track record of responsibly managing their finances, a lump sum may be the right choice. They can use the money to pay off a mortgage, enjoy retirement, or even invest in their own children’s education.
• Timing of ownership. Parents creating trusts for their children can determine at what age their children can take an active hand in managing their inheritance, both as a co-Trustee or a sole Trustee. This allows beneficiaries to enjoy the benefit of their inheritance with the protections of a safety net as they grow into financial responsibility.
• Support for major life events. You can provide partial distributions to help a child during a major life event, such as making a down payment on a home or starting a new business, paying for a wedding, and reserving the rest of their inheritance to be distributed later or for different purposes.
• Third-party discretion. If you have a child who struggles with managing their money, selecting a third-party trustee to oversee their inheritance may be wise. The trustee can manage the funds and distribute them at their own discretion. This type of distribution structure can also provide protection from your child’s creditors, divorcing spouses, or predators.
• Special instructions for special needs beneficiaries. If you have a child with special needs who may require means-based government benefits, it is crucial to structure their inheritance so as not to disqualify them from or make them ineligible to receive important government aid.

The Power of a Trust

A trust is a powerful tool many parents use to protect their children’s inheritances. Accounts and property held in a trust can be safeguarded from the following risks:

• Irresponsible spending. If a child lacks money management skills, a trustee can manage the funds and make distributions over time, preventing the child from blowing through their inheritance too quickly.
• Asset Protection. In many states, including Texas, an inheritance held in a trust can be protected if a child goes through a divorce. Additionally, depending on its terms, a trust can further shield the inheritance from future lawsuit or even bankruptcy.

Lifetime Gifts: The Joy of Giving Now

If you have the means, consider giving your children part of their inheritance during your lifetime. This approach has two main benefits. First, you can witness the positive impact—whether it’s a first home, new business, or college tuition for grandchildren. Second, with the right strategy, gifting can reduce your taxable estate and potentially lower future estate taxes owed at your death.

Remember Other Beneficiaries

While your children may be a top priority, you don’t have to leave everything to them. Many parents prefer a balanced approach—providing enough support without encouraging dependence or discouraging ambition. If your estate is sizable, consider using it to create a meaningful, lasting legacy. You might set up trusts for grandchildren and future generations to ensure long-term support and stability. You could also contribute to charitable, educational, or religious causes that reflect your values and passions.

Let’s Start the Conversation

Thinking through these decisions can feel overwhelming, but you do not have to do it alone. We can help you navigate these important choices and create a plan that is right for your unique family. Nielsen Law PLLC Provides family-focused estate and business planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area. For more information, and to learn about our firm, please contact us to learn how.