"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.

Younger Children

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."

The number of incentives an advisor and client can devise is virtually limitless, Castleman continues. "I drafted some where once the child is out of college, the trustees will match the amount of money that the child is making, so it encourages the child to go out and get a better job, and the trustee will give him more money. Other people have said, 'Now wait a minute, what if the child wants to become a schoolteacher or go into the ministry, or wants to work for the Peace Corps, they're not going to make so much.' Other people will ask the trustee to encourage the child to do public-service work and to supplement his or her income, within the trustee's discretion, provided the person is making a worthwhile contribution to society. There are so many variations."

Special Needs

Another instance in which a person might leave unequal inheritances to beneficiaries is when he or she is the parent of a disabled child. Depending on the amount of their assets and their goals, parents might be advised to leave more or less to a disabled child, estate-planning attorneys say.

"I have a case where there's three children, and one of the children has had heart trouble his entire life," Stokes says. "He has had multiple operations, he's a junior in high school and the other two are fine. So we're going to have a separate trust for him, and it's going to be a medical trust. We're going to take something off the top and keep it there for him, and then the balance we're going to divide equally between all of the siblings."

Another concern of many parents is that a disabled child receiving government benefits could lose them if money were left to him or her outright or through a trust.

"If a child does have special needs, the parent can establish a special-needs trust, which is designed to supplement the government benefits. Sometimes it's called a luxury trust, and it's just to pay for things the government doesn't pay for. But a lot of people don't like that, because it basically forces the child to live in a Medicaid environment. So those work best for very modest estates, in my opinion," Castleman says. "If the parents have a larger estate, I would set up a lifetime trust for the benefit of the child and provide in it the trustee could distribute directly to the child if appropriate, or distribute to health-care pro-viders or other individuals or entities that provide services to the child."

Gerald Morlitz, an estate-planning attorney in New York City, agrees special-needs trusts may work for parents who want their child to continue qualifying for government assistance. "The problem is figuring what luxuries are as opposed to necessities, and how to get money to the child for other purposes. Really wealthy people will figure the hell with it and do a couple of different trusts, and they will set up a smaller trust that will provide for the child under any circumstances. If the trust gets attacked and the state is successful in using the trust fund to pay for the child's needs instead of providing assistance, a couple hundred thousand has gone down the drain, and that's it," Morlitz says.

Another alternative, he adds, is to leave the money to the siblings and trust they will take care of the disabled child's financial needs. "I work with one family who has a child in his forties who has been in and out of rehab homes. When he's OK, he needs money, and it's not huge amounts of money, but it's for his apartment and basic stuff, and those aren't luxuries. So what you have is the other children taking care of him, and that works reasonably well, for this family," Morlitz says.

Giving money to another child to take care of a disabled one or naming a sibling as the trustee of a special-needs trust often, but not always, is the best choice.

Stokes recently worked with a family who has a grown child diagnosed as maniac depressive. "He's estranged from everyone, only takes his medication fitfully and won't have anything to do with anyone. So we've set up a trust for that child and named a bank as trustee," Stokes explains.

Of course, families usually don't know the precise amount that will be needed to take care of a disabled child in the future. Therefore, Chicago estate-planning attorney Jay S. Goldenberg sometimes recommends they set up a convertible trust - an ordinary discretionary trust that converts to a special-needs trust if the discretionary-trust assets fall below a level set in advance. This way, the beneficiary doesn't need to live under the confines of a government program unless the trust assets fall low enough and the remaining money needs to be stretched out, he says.

Wealthy Children

Sometimes, parents will decide to leave less to a grown child because that child has made a fortune and other siblings have far more pressing needs.

Still, these cases remain rare. "In most cases in my experience, even though there's differences in what children have accumulated, the parents will treat children equally," comments Robert Clofine, an estate-planning attorney in York, Pa. "But I can think of one client in particular. They have four children. The one daughter is very, very, very well off, and instead of leaving that child anything, they left more to the other children and a little bit to the children of the daughter that was well off. From an estate-tax standpoint, it doesn't necessarily make sense to leave money to someone who has his or her own estate-tax problem. You may want to leave it in a trust for that child so that it doesn't become part of that child's estate for federal estate-tax purposes."

On occasion, adult children who are financially independent will tell their parents not to leave anything to them. "I have had situations where one of the children says, 'Mom, Dad, don't give me anything. I'm a zillionaire, and I don't need the money, so don't worry about me,' and the parents reluctantly say, 'OK,' " Stokes says. "I don't usually see parents saying, 'So and so doesn't need it, so I'm not going to give it to him,' because they have this sense that they need to be evenhanded with their children. But sometimes, a child will come back and say, 'Don't give this to me.' "

Even when children don't need their parents' money, the idea that they would give more to other siblings may not go over very well. Morlitz described a situation involving a longtime client who was worth at least $10 million three or four years ago. "He said his goal was to spend his last penny just before he died. He has three children and nine grandchildren, and he's been giving away a quarter of a million dollars a year with his annual exclusions, year after year after year. He's done a great job. And the oldest son hit it with a dotcom and is worth a lot more than Dad. The middle son teaches school, and the youngest son is a corporate executive. How do you divide that estate? Dad and Mom decided to sit down with the three children. The oldest son is worth $20 million. And they said, 'We're not going to divide it equally. They got back, 'You're penalizing success.' Right now, they're leaving it equal. The other two kids say, 'That's OK. That's the way it is.'"

"In my opinion, Dad thought that was OK, he was OK with equal," Morlitz says. "But Mom is not any way going to accept that. And her family is long-lived, and she's got just as much money as he has. My guess is that after Dad dies, we're going to see a big change. So you've even got the differences between the parents."

The Business

Estate-planning attorneys agree parents may not want to divide a business equally among children, particularly if they want the business to continue under family ownership. Disagreements between siblings about how the business should be operated could ultimately lead to its sale. Also, some parents feel a child who has been involved in the business, who helped make it grow, should be rewarded for that effort and should get a larger share, if not the whole package.

"That situation is probably one of the more difficult situations to deal with," Clofine says. "In my area, you have farms where you have one child who is a farmer in the business and the others aren't. It's pretty tough sometimes to divvy it up so there's equal treatment. So the parents often have to make a compromise between equal dollar amounts of their estates and being fair to the child who's been involved in the business."

Morlitz says some people buy insurance to give to the other kids. "If it's a reasonably successful business, what you do is you use some of the cash flow and buy insurance. In effect, what you're doing is letting the business buy out the other kids. That works pretty well."

A family limited partnership is another option. The business is put into the partnership, and the children who are not participating actively in the business get limited-partnership interests, resulting in them getting income from the operations but no decision-making power, Castleman says.

Andrew DeMaio, an estate-planning attorney in Matawan, N.J., adds parents could plan to have the family business become a corporation that has voting stock for the active children and nonvoting stock for the children who aren't involved.

Another choice might be to transfer the business to a charitable remainder trust. "If you establish the charitable remainder trust and transfer the business to that trust, the trust then turns around and sells it on an installment basis to the child who is going to continue the business," Castleman says. "Now the child who has the business can do what he or she wants with it, but owes the stream of income payments to the charitable trust, which distributes it out to the nonparticipant child for that person's lifetime. Whatever principal is left over after the nonparticipant child dies would go to a specific charity or foundation or something like that."

DeMaio says with a business that owns real estate, the parents may be able to pass the real estate to all the children but the business to only those involved. Another possibility would be for the business to take out loans to pay something to children who didn't inherit it, he adds.

"There's no one answer. Sometimes, the clients may give up the idea of equality and look at what's equitable," DeMaio says.

Second Marriages

How to divide an estate when there are children from different marriages can be complicated. "The problem is sometimes you have his and hers, and then theirs," Stokes says. "And then the wife inherits $300,000 or $400,000 from her family and wants to keep that separate. At the same time, she wants the estate to be there for the benefit of the surviving spouse and doesn't want to immediately give it to her kids."

Stokes says one method he suggests is coming up with a fair distribution by looking at what each partner brings to the marriage and applying percentages to the assets. "We look at his property, her property and their property. First, we add up all these baskets. Then we go back to the wife and say, 'Your basket is 30% of the whole. Let's say regardless of who dies first, 30% of it will go to your kids. We'll do ratios based on what it's worth now, and then we'll take the ratios and apply them to the plan. So when the second one dies, 30% goes to her kids, if his basket was 40%, 40% goes to his kids and the balance, 30% earned while they were married together, that goes to all of them."

Stokes adds the plan needs to be reviewed periodically and adjusted, if necessary, to take into consideration the different rates of return a husband or wife might see in their individual or joint portfolios. "I've got some folks coming back, and we did this five or six years ago, and their house, which they own together, just exploded in value, and his investments got bigger, too. So we always have to take another look."

Other Considerations

"If you're going to make unequal dispositions, you should realize the possibility of a challenge down the road and do what you can to avoid that," DeMaio says.

How can a challenge be avoided? DeMaio says one choice is for parents to let the children know ahead of time what you're providing and why. If the parents prefer not to do that, they could write a letter separate from the will explaining their decisions. It's important the parents make sure there are no conflicts of interest. For example, there could be a conflict of interest if the attorney who drafts the will is introduced to the parents by the child who inherits most of the estate, he says.

Stokes agrees a person should be clear about his or her intentions. He has seen situations in Florida in which a mother has all or most of her money in CDs and other bank accounts in joint ownership with a daughter who lives near her. Her will, however, divides her estate between that daughter and another daughter who lives in New York.

"Mom dies, all the CDs by operation of law go to the sister here, and under the will, the sister in New York gets half of nothing. So she comes screaming down saying: 'It's obvious Mom wanted me to have half of everything because she wouldn't have written the will the way she did.'

"Often, the mother and daughter here will do that so if Mom gets sick, the daughter can access the CDs and the bank account, and that's what the sister up north says, 'Mom only did that for convenience purposes,' and the sister down here says, 'No she didn't. She did it because I was taking care of her.' "

Stokes says if a parent is going to do that, she should make it clear in her will that she has some of her accounts in joint name with one daughter and means for her to get that money. "If I get her in my office, I don't do that to take care of disability issues. I use revocable trusts. This happens with some people because they kind of do it themselves. They talk to some bank officer, who says, 'Why don't you put your assets in joint name with your daughter here?' There's a lot of cases in Florida where these two sisters have fought it out."