Siblings are often contentious regarding the inheritance of their parents’ assets. However, such acrimony can be avoided by implementing certain steps that will prevent any type of forced sharing among your children.
In order to prevent financial disputes among your adult children, refrain from using a pot trust, which is the term used by many estate planners to refer to the vehicle used to divide assets among children. According to Cornell Law School’s Legal Information Institute, in a pot trust, the trustee can spend funds on an as-needed basis instead of making equal distributions among all children. Although a pot trust is sufficiently flexible to permit some children to access money if they are confronting financial problems, it can create some unpleasant issues because it compels them to share money, thereby causing them to become belligerent.
One way to resolve this dilemma is to establish separate trusts, which will solve the problem of whether a trustee will distribute funds equitably among your children after you are gone. If your family owns a vacation home, you may be inclined to keep the home in the family by leaving it to your children in hopes that they will create fond memories with their own children. However, the house will require some maintenance, and there may be some disagreement over who will finance such expenses. The siblings may also disagree about who will occupy the property, and when they will use it. And while some siblings may wish to keep the property, others may prefer to sell the home and divide the proceeds.
While it may be best for the parents to sell the home, many families are so strongly attached to the home that they would never consider such a possibility. Thus, in lieu of selling the house, you could transfer it into a limited liability company or partnership with explicit operating rules, or establish an endowment to pay the real estate taxes and repairs. In this way, your children and grandchildren will not become involved in disputes over money in later years.
Parents frequently wish to write a will that leaves different amounts to each child based on the parents’ perception of the child’s financial need. But this is not recommended. A more favorable alternative is to offer an explanation to your children as to why you are helping one child financially while you are alive, and after your death, leave each of your children an equal amount.
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