Clients
are often concerned with ensuring that they treat each of their children equally.
Clients worry that imbalanced gifting between children, for example providing
more funds to one child to attend a private university while their sibling
attended a state school, providing one child with the funds to assist with the
down payment on a house, or assisting one child with launching a business, will
cause tension if not balanced out in the long run. This concern leads to a
discussion about which children previously received gifts or loans from the
parents and how to adjust the distribution of trust assets to children to be
fair to siblings who did not receive such gifts and loans.
One of my
favorite phrases with clients is "the only limitation on what you can do
is your imagination." I have one client who has chosen to add a provision
to his trust that states that all distributions to children whether as a loan
or a gift are to be treated as a gift and shares of the children are
specifically not to be adjusted for anything received during lifetime. Other
clients want options that provide greater equality, but are more complex. While
I am happy to provide those options, I will often suggest to a client he or she
may want to consider what is "fair" for each child rather than what
is "equal.”
There are
a number of ways to adjust distributions to account for gifts or loans to children
during the client’s lifetime. One example is to have the trustee add all loans
and/or gifts made during the client’s lifetime back into the estate at death
for calculation purposes. The trustee then provides an equal division for all
children, adjusting each child's share for loans and/or gifts they received
during lifetime. If clients elect to use this method to adjust bequests,
careful records should be kept, to ensure that children are not penalized for
loans that were previously repaid.
Another
option is to provide a specific dollar amount for each of the children who did
not receive loans or gifts during lifetime, which the trustee distributes from
the estate before the equal division occurs. Again, good record keeping is
important with this method to avoid creating an imbalance in favor of a
different child.
There are
number of other options, but it is clear that such clauses should be added to a
client's documents only after a discussion with the client and careful drafting
by a qualified professional.
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