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- Estate Planning: Equal Isn't Always Fair
- What’s the Greatest Gift You Can Leave Your Family? A Plan for Future Financial Success
Estate Planning: Equal Isn't Always FairEstate planning is both delicate and complex. It's difficult to foresee all the potential complications, but failing to address key points about your business, property, deeds, and finances could leave your children with more questions than answers after you pass. Proper estate planning goes beyond the equal division of assets and makes sure the inheritance is truly fair. Business InheritanceIf you own a business, it's crucial you have a detailed and documented succession plan in place. First, you need to explore whether your family members want to inherit the company. When an individual inherits a business, they don't just inherit the associated assets. They might also inherit debts, liabilities, and other burdens. They can run into many tax complications when they go to sell the business and ultimately find they're poorly equipped to make a good deal on the sale of the company. Potential ProblemsConsider the potential problems if you pass along business shares without considering how your children plan to use them. For example, a couple might choose to pass along the father's majority share in the company to his son who is involved in the business. The mother's smaller 10% share then goes to the daughter upon her death, which seems fair. However, this leaves the son performing all the work for 90% of the profit. Meanwhile, the daughter continues to maintain some liability in the business along with her 10% share, which might not be what she desires. The children might negotiate a way for the son to buy out the daughter, but this forces them into complicated business dealings. Parents can help their children avoid this with thoughtful planning. The Importance of Succession PlanningProper succession planning can streamline the business transition and help ensure the company continues to operate, grow, and thrive. Unfortunately, just 34% of family businesses in the United States have a robust succession plan that's both documented and communicated. Further, only about 56% indicate that all the family members involved in the business have similar priorities and viewpoints. While it might seem perfectly fair to split business ownership equally among children, this strategy could leave them with an inheritance of confusion and strife. Consider how you want the business to function after your passing, and facilitate thoughtful estate planning that will promote long-term success over simplistic equality. Home and Land InheritanceKnowing what you want from your estate planning and actually getting it are two different things. If you don't have thorough and appropriate documentation, you might find your home is still subject to probate. In this case, a probate court will rule on the distribution and division of assets. Putting trusts in place or issuing a ladybird deed can help your estate bypass probate. In cases of great sentimentality and multiple children, you might face additional hurdles. Your home, land, or farm is often more than just a piece of real estate to your children. These assets often have sentimental value. For this reason, it's important to examine fairness apart from clean-cut equality. One child might have a strong emotional connection to your farm and deeply desire the property while other children aren't interested in taking on the responsibilities, taxes, and other potential challenges associated with the land. Potential ProblemsIf you leave your home or property to your children in equal parts, they might face myriad complications when navigating what to do with the situation. If one child wants to keep the house and the other doesn't, they must decide how to equitably reach this conclusion. They might need to get an appraisal on the home to determine how much the purchaser must pay to their sibling to take over the property. If the purchaser doesn't have adequate funds, they might have to take out a mortgage on the property, paying off their inheritance for years or even decades. In an attempt to spare their sibling these complications, the individual who isn't taking on the home might arrange to accept payments on their portion of the home. This introduces more potential for strife, as the child acting as a lender must decide if they'll charge interest, when and how they'll accept payments, and what they'll do if their sibling suddenly can't pay. Parents can create a more peaceful solution for their children by addressing major inheritances like this in advance and planning appropriately for what the children really want. How To Improve Your Estate PlanningFortunately, the issues mentioned above are easily avoided with proper estate planning that goes beyond the appearance of equality and explores the more complex issue of fairness. What's fair is usually a solution that creates minimal complications, questions, work, and strife for those receiving the inheritance. Consult ProfessionalsWork with a professional who can present the right questions to help you do a deep dive into your estate planning. There are many points the average family simply won't think about ahead of time. Diversify your team with more than just an estate planning attorney. While the attorney is essential, a financial advisor can take the time to explore complexities like your goals and desires. A financial advisor provides an extra pair of eyes that can often spot issues that went overlooked by both the individual and the attorney. Call a Family MeetingSit down with your family and openly discuss what each individual wants from the estate planning. Find out what each child truly desires, whether that's a financial inheritance or the family farm. Incorporate these desires into your final plan and explain it clearly to everyone involved. This will help avoid any confusion, confrontations, and other difficulties that might otherwise arise after your passing. Proper estate planning can ease transitions and make things as smooth as possible for your children after your passing. Our team at Atlas Financial Strategies can help you navigate the complexities of estate planning to make sure it's fair and well-executed for everyone involved. |