Protect Your Kids’ Future with Your Estate Plan

Protect your kids’ future by learning what to avoid in your estate planning. While estate planning is mostly about transferring your wealth, your plan should encompass much more than that. Many individuals shy away from exploring family complexities or addressing emotionally charged matters. However, the truth is that failure to plan, confront tough issues, or neglect practical planning logic can sow the seeds of family dysfunction. While there are numerous ways an improperly handled estate plan can harm your children, the following insights aim to help you protect your kids’ future.

What to Avoid In Your Estate Plan to Protect Your Kids’ Future

Not Being Flexible in Planning

To ensure the effectiveness of your plan, ask numerous “what if” questions and stress-test your strategy. Many plans are made with decisions for present circumstances, which aren’t always the best choice. Let’s consider an example of an inflexible plan: A couple with four children, who are also actively involved with several charities, viewed charity as their fifth child and wanted equal treatment for all. Consequently, they hired an attorney years ago to draft a will that allocated their $1 million estate as follows: $200,000 to each child and the remainder to the listed charities. Although this plan may have sufficed initially, it became dangerously inflexible over time. When the couple finally consulted a new estate planner more than 15 years later, their estate had grown to $10 million. Ideally, they would have wanted to pass $2.5 million to each child and their chosen charities. However, due to the rigidity of their old will, if they had passed away without signing a new one, each child would have received $200,000, and the charities would have shared $9.2 million. This outcome was far from their intentions.

In the above case, the original will might have been intended to ensure that each child received a minimum amount before any funds went to charity. However, the wills were drafted in a way that a substantial increase in the estate would result in the opposite of their intentions. A smarter approach would have been to bequeath the first $800,000 equally to the children and distribute the excess equally among each child and the charities. Whatever your desire, make sure your priorities are reflected in your plan.

Neglecting Children’s Attitudes and Beliefs

Naming your oldest son as the executor might seem like the right thing to do, but will he truly act fairly and objectively? What happens when a decision arises that puts his interests in conflict with those of another child? Does he possess the temperament and values required for a fiduciary role?

If you want a guaranteed fireworks display, appoint a child with significantly different religious or philosophical views as your health care agent for end-of-life decisions, contrary to your beliefs and those of your other children. Perhaps your entire family adheres devoutly to a particular religion, and religious principles significantly influence end-of-life decision-making. However, you’ve named your oldest daughter, who is a physician, as your health care agent. While she may have strayed far from the religious path in which she was raised, you feel that, as a physician and your child, she should make those decisions. Perhaps you haven’t fully acknowledged her substantial changes in religious views. This scenario highlights the implications of a non-religious agent making end-of-life decisions that contradict the fundamental religious beliefs held by you and your other children.

Making Unequal Distributions

You may believe that your youngest daughter is a better child than your oldest son, but it is unlikely that your oldest son shares the same sentiment. If you plan to leave unequal bequests, exercise caution and discuss the matter with your professional advisers, as it can be a delicate issue. Consult a mental health expert to evaluate options for handling the disparities and related matters. Mishandling this aspect can lead to conflict among your heirs, which should be avoided. Sometimes, there are simple ways to address the desire or need (e.g., a child with greater needs, as discussed earlier) for disparate distributions. Some families engage in open discussions about the reasons behind providing more to a particular child, and everyone involved is on board. Such open and frank discussions can help prevent future conflicts. However, even with adequate preparation, disputes may arise with little to no avail. There may be alternative approaches to achieve the same objectives with less confrontation. For instance, parents who wish to leave an additional $1 million to their oldest daughter because their younger son married a wealthy spouse and has achieved significant financial success might purchase a $1 million life insurance policy on their lives (or one of their lives) and have their son own it (or create a trust for his benefit). They would pay the premiums each year. While their daughter may realize that a disparate distribution has occurred, this approach is less overt. As a result, the will could now bequeath the estate equally to both children. Creativity can sometimes reduce the risk of future disputes.

Neglecting Account Updates and Beneficiary Designations

Failing to keep account ownership and beneficiary designations current and aligned is another way to disrupt your plan and create issues for your heirs. It may seem like an obvious problem to avoid, but it does happen. Consider this scenario: A mother has two children and designates her oldest as the beneficiary of one brokerage account, while her youngest is named as the beneficiary of her second brokerage account. The account balances are initially equal. However, as the mother covers her living expenses from the first account, its balance decreases while the second brokerage account grows in value. Unintentionally, the youngest child receives an increasingly large share of the estate over time. This is simply poor planning. A similar issue may arise when parents try to avoid probate by using joint accounts or payable-on-death accounts. For younger parents who employ these simple probate-avoidance approaches, what happens when they have two children listed on various accounts or IRA beneficiary designations but then have a third child and fail to update account titles or beneficiary designations?

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