Imagine a pair of aging parents who are farmers. They are getting on in years and are considering moving into a smaller place. One of the daughters and her husband help run the farm, but the rest of the siblings have moved away and they aren’t interested in returning. It’s now time to think about how the farm legacy should be worked out.
The first order of business is to plan the finances so the parents can enjoy a comfortable standard of living in their later years. They may need long-term care in the future, so they should consult an elder-law attorney about how to plan most effectively. If they don’t plan, they could lose the farm later to a lien, to reimburse the government if they end up needing Medicaid assistance.
It is most common for parents to divide inheritance of property or money to be divided equally among the children. But sometimes, parents intentionally choose to not leave anything to a child, and the reasons for doing so may vary. One reason could be that a child who is more financially successful than the others and the parent doesn’t feel it’s necessary to leave anything. Another reason may be a desire to prevent a child with special needs from losing government benefits. Or a parent may not want to leave an inheritance to an irresponsible or drug-dependent child for fear the inheritance will be wasted.
The Effects of Disinheriting a Child
Regardless of the reason, disinheriting a child can negatively affect that child’s relationship with his or her siblings. The courts are full of siblings who sue each other over inheritances but even if they don’t sue, it is highly unlikely they will be a close family unit. Money aside, there is symbolic meaning to receiving something from a parent’s estate.
There are different benefits of using a will and a trust for estate planning purposes. Each state has specific laws and regulations governing these legal documents. You can have both a will and a trust; however, the information in each should compliment the other. As a standalone, it is not accurate to say one is better than the other. The better choice for you, or a blend of both documents, depends on your assets and life circumstances. Begin by assessing your situation, goals, and needs, and understanding what wills and trusts do to guide your decision making. Then, along with an attorney, you will be able to identify the solution that best suits and protects your family.
At its most basic level, a will allows you to appoint an executor for your estate, name guardians for your children and pets, designate where your assets go, and specify final wishes and arrangements. A will is only enacted upon your death. It has some limitations regarding the distribution of assets, and wills are also subject to a probate process (which occurs in court and is overseen by a judge) and, as such, are part of public records.
A trust was created by your friend Rose and she has appointed you as the trustee. You want to help, but you’re concerned about all that responsibility. You would be managing Rose’s property for her and for others whom she names as beneficiaries. You might be paying her bills and taxes, overseeing bank accounts, making investments, collecting rent or unpaid debts, getting insurance if needed, and doing whatever else the trust directs you to do. People named as trustees are considered in law as “fiduciaries.” “Fiduciary” stems from the Latin for “trust.” To merit that trust, you must act in Rose’s best interests, to the highest ethical standards of good faith and honesty.
It is a lot of responsibility, but the government is here to help. The Consumer Financial Protection Board (CFPB) has issued a guide: “Managing Someone Else’s Money: Help for Trustees Under a Revocable Trust.” Download your free guide here.
The information on this website is for education purposes only and is not, nor is it intended to be, legal advice. An attorney consultation is necessary for you to receive advice regarding your particular situation.