"I assume you treat your children equally, right?" estate-planning attorney Lorin Castleman of Pleasanton, Calif., asks the audience at a seminar.
Almost all the attendees raise their hands.
"No, I bet you treat your kids fairly," he responds.
There's a pause, and he starts to see looks of understanding come across their faces.
Although most people divide their estates equally among their children, there are some situations in which it may be best to do otherwise. Having young children, a special-needs child or one who has made a lot of money might be reasons for parents to rethink equal distributions. Parents who own a business might decide against equal divisions, too.
If both parents were to die prematurely, how would their young children be taken care of? After selecting a guardian, parents' next action might be to ensure their estate would be divided equally among their offspring. But that actually might result in the children being treated unfairly, estate-planning attorneys say. It often is better to create one common trust for the benefit of all the children, at least until the youngest one has completed college, they add.
Suppose parents who die have four young children: The youngest is a junior in high school, the next youngest is a sophomore in college, the next is a senior and the oldest has already graduated, says estate-planning attorney Paul M. Stokes of Miami.
"If we divide everything in four shares, then the oldest has gotten off the top from the family an entire college education. That's kind of unfair, because he's going to get one-fourth of what's left, plus he's got his college education. So what we do is say, 'We're not going to divide it into equal shares until the youngest reaches age 22. And in the meanwhile, the trustee can use it disproportionately for the benefit of all the children. If the kids in college have really heavy expenses that year because they're in college, then they'll get more that year. The oldest one, graduated, maybe has a job; he may get very little. And we'll keep it going to take care of the special needs of the children while they mature, and then at the end we'll divide everything four ways, whatever is left.' "
Estate distributions might end up being unequal to children if parents set requirements for an inheritance and they're not met. "With high-net-worth people, we're doing more in terms of incentive trusts for them," Castleman says. "The trustee will withhold distributions of income unless the child is attending college, a trade school or a school for the arts, or whatever parameters you want to put in. They don't want the kids just to become trust babies and just live off the funds that are in the trust. A lot of them like provisions in the document that say the trustee can withhold funds, except for medical care if the child is abusing alcohol or drugs."