Should You Treat Children Equally in Your Will?

When you are writing your will, the default option is usually to leave your estate to your spouse, then to your children in equal proportions.

But what if your family situation doesn’t fit into this neat template? There are a number of situations where it is appropriate to treat your children differently when it comes to your will. With careful planning and plenty of communication, this can still lead to a fair outcome.

The Circumstances of Your Children

If your children are in a similar age group, with families, careers, and good health, the simplest, and fairest option is probably to divide your estate equally. But there are a number of situations where an equal split doesn’t lead to an equal outcome. For example:

•         If one child is disabled and will need extra money set aside for care.

•         If there is a vast wealth disparity between your children. Leaving more money to an adult child who is already wealthy won’t help them, and could create an Inheritance Tax issue.

•         If one of your children lives at home to care for your or your spouse, at the expense of their own career and lifestyle.

•         If a child has a chaotic lifestyle, putting money directly in their hands could be dangerous. A more suitable option could be to leave someone else in charge of the money to be used for their benefit.

•         If one or more of your children is at risk of bankruptcy or divorce.

•         If you have grandchildren, you may wish to distribute your estate in a way you feel will ultimately benefit them.

How Much Support Have They Already Received?

Making gifts during your lifetime is strongly encouraged from an estate planning perspective. Some gifts are immediately outside your estate, while others drop out after seven years.

But many people make gifts to their children as they need them, for example, to buy a house, pay for a wedding, or to support grandchildren through education. If one of your children has already received financial support, should they receive an equal share of your estate?

One potential solution is to make loans to your children, so the outstanding amount is deducted from their share of your estate. This is simple, fair, and doesn’t require you to keep re-calculating the share due to each child. You can write off the loan (which effectively creates a gift) at a later date if you wish.

Any outstanding loans will remain in your estate for Inheritance Tax purposes, so this solution is not suitable for reducing your IHT liability. 

Age Differences

If there is a large age difference between your children, it may not be fair to treat them equally in your will.

If one child is in their 30s and financially comfortable, while the other is 18 and still in education, it would be reasonable to allocate more of your estate to your younger child. They have not yet had the opportunities which were available to their sibling and may need a little more support to achieve independence.

Second Marriages

Second marriages and blended families can be a minefield in terms of estate planning.

For example, if you are married but have children from a previous relationship, in most cases the majority of your assets would pass to your spouse on death.

When they die, the entire joint estate could pass to their children, leaving your own children disinherited. Even if you make wills to ensure this won’t happen, your new spouse could easily change their will after your death.

If you have children from both relationships, it can be difficult to decide what is fair, particularly with the added emotional baggage of divorce and second marriages. It is reasonable to consider what each child would inherit from their other parent in this situation.

More importantly, if your situation is complicated, you should seek advice and keep your plan under careful review.

Your Estate

When your estate is made up of assets that are less liquid, such as property, vehicles, and valuables, you may wish to leave specific assets to each child rather than an equal split.

This can be a good idea if the assets have sentimental value, or if you do not want them to be sold after your death.

If you do want to keep things equal, you could also set up whole of life insurance to make sure each child receives equal value.

When There is a Family Business Involved

Many of the most difficult estate planning conversations revolve around a family business. This may be your most substantial asset, as well as being a legacy that you want to continue beyond your death.

If your children are equally involved in the business, the decision is easy. But if one of your children has followed another path, should they be offered shares that they have not worked for, or receive a lesser portion of your estate? Neither seems entirely fair.

Advice is critical when you are considering business succession. One option could be to gradually gift shares to children working in the business as part of their remuneration. It’s also worth building up wealth outside the business (such as a pension) so that you have another source of income should you need it. Taking these steps can help to ensure a fair distribution of your estate.

Consider a Trust

It may not be appropriate, or even possible, to make these decisions now.

Setting up a discretionary trust is one way of deferring the decision, and leaving the distribution of your estate in the hands of your trustees. A trust can be set up with:

•         A gift made during your lifetime

•         A life insurance policy

•         The assets in your estate when you die

This means that the money is not directly in the hands of your children, but can be distributed to them when appropriate. This can protect your wealth against divorce, bankruptcy, and poor decisions (to an extent). Trusts can be complicated and there may be tax consequences. Advice is always recommended.

Ultimately, you probably want to treat your children fairly, but that does not necessarily mean equally. Most families will understand this if they are given enough time to process the information. Unfortunately, many people leave these conversations until it is too late, which can lead to confusion and resentment.

Talk to your children, keep them updated about your plans, and help them understand your decisions. And remember, your will can be changed at any time, so there is plenty of scope to review your decisions later.

Please do not hesitate to contact a member of the team to find out more about estate planning.

Wills, trusts, tax and estate planning are not regulated by the Financial Conduct Authority