Florida Elder Law & Estate Planning Blog


Consider Loans and Gifts You’ve Made To Your Children When You Create Your Estate Plan

October 17, 2020
lending and giving money

Most parents do their best not to favor one child over another. That’s the case when the kids are young, and continues when they are grown. So when you are planning your estate, you probably want to be fair when it comes to your children’s inheritances.  The problem is that as a practical matter, “fairness” is often in the eye of the beholder. Just like when they were little, what one adult child considers to be equitable, another may consider a miscarriage of justice.

Loan or Gift?

If you have given money to one or more of your adult children in the past, determining what is fair to pass along after your death can be challenging. Who did you give money to? Was it a no-strings attached gift? For what purpose? If it was a loan and not an outright gift, was it secured by a legitimate promissory note, or by a verbal promise to pay it back? Were the terms understood clearly when the money was lent? Has it been paid back? If so, how much? Was the money used to help a child out of a real jam caused by no fault of his/her own, or was it to bail out a child from an avoidable, self-imposed crisis? Do all the siblings know about it? Consider these scenarios we have seen in our practice:

  • You gave your daughter $50,000 toward a house down payment. She signed a promissory note and she has been paying you back dutifully for the past two years. Presently, she still owes you $44,000. Do you want to deduct from her inheritance whatever amount she may still owe when you pass away? Or do you want your estate plan to specify that any balance is forgiven? How will that impact your other children? How likely is it that all your children will consider this a fair arrangement?

 

  • Five years ago you gave your son $100,000 for a start-up business venture. There was no signed written agreement, just a verbal agreement that he would pay back what he could, when he could. The venture failed and he hasn’t paid you back a penny, nor does it look like he intends to. His two siblings know about the money he received. Is it now fair to distribute your assets equally among all the siblings, assuming the $100,000 is still unpaid at the time of your death? Or should you insist that your borrower son pay your estate that amount? Recognize that if he has two siblings and he does repay the estate, and he is an equal beneficiary, he will still get back one third of what he puts in, unless your estate plan specifically precludes that.

 

  • Your youngest daughter has always been financially reckless. She is single and has a young child with special needs. Over the years you have felt obliged to help her out many times, to the tune of thousands of dollars. Your son, on the other hand, has always been responsible and has never needed your financial assistance. He occasionally remarks that he feels you’ve neglected him for being competent, and rewarded and coddled his sister for her poor judgment. How should you handle their inheritances? Should you deduct what you’ve given her from her inheritance? Split everything equally between her and her brother? Does she still need money? How will she and her brother react to each of those choices?

 

Your Estate Plan Should Explain Your Thinking

If these kinds of thorny situations are part of your family’s reality, no doubt you want to create an estate plan that all your children will view as equitable, and that will not create or increase any resentments among them. Unfortunately, try as you might, that is not always achievable. What is achievable and useful is presenting your children with the reasoning for your decisions. Your estate plan should explain why you are making the distributions. This may mollify a child who is dissatisfied with his/her inheritance and tamp down potential conflict among your kids. (Remember, the bottom line is that a parent is under no obligation to leave any adult child anything!)  Here are just two examples of what you might want to include in your estate plan, depending on your circumstances and desires:

  • Forgive all your children’s debts, out of recognition that all your children have different needs, problems and opportunities. You have done your best to help each one as best you could during your lifetime, and now, you think it makes the most sense to split your estate equally among all your children, regardless of any loans or gifts that came before.

 

  • If you have given one child a sizable amount of money, you could acknowledge that and reduce that child’s inheritance by that amount. Your estate plan should explain that from your vantage point, those monies were in effect an advance on his/her inheritance, and it would be unfair to reduce the other children’s distributions by that amount.

 

It can be challenging to figure out the best approach!  Talk to our attorneys about how to handle these issues in your estate plan. We will sit down with you to discuss your desires, your family situation, and your options for structuring your estate plan.