Dear Quentin,
My husband and I have been retired for seven years. We had good jobs, saved money, and now have some financial security. We went from a four-bedroom house to a two-bedroom house, from two cars to one. We purchased prepaid cremation plans and continue to save where we can. Several years ago, we drafted our will with an attorney and placed the appropriate assets in a revocable trust.
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It seems we were all ready to enjoy our retirement. RIGHT? My son, however, had financial problems. He joined promising startups; However, startups don’t always take off. He has a wife and young daughter who needed his support. Without the means to support them, he turned to his parents. When we agreed to help him by giving him $100,000, it was understood that this debt would be repaid with his share of the inheritance.
He now has a stable job and no longer needs our help. How do we fairly document this debt in our will and take into consideration that he is not the only beneficiary? Should we simply strip him of his share of the inheritance and ignore the fact that the other beneficiaries would have received a larger share of the inheritance, without his debt? Once we have determined an equitable distribution, how can we document it in our will?
Mom in California
Dear MIC,
You deserve to enjoy a peaceful, guilt-free retirement.
Your plan should be twofold: 1) Be transparent with your son so he knows what you plan to do; This isn’t necessary, of course, but it will help offset any hurt after you leave and, ideally, give him time to get used to the idea that he will inherit X instead of Y. When a loved one dies, this can bring all kinds of family dysfunction to the surface, so the more honest and respectful you are about different inheritances, the easier probate should be.
And 2) Be as specific as possible in your will. Include the reason why you do not want to leave equal amounts to your children: this may be because one child is richer than the other, or does not have secure housing, has chronic health problems, or simply because of favoritism. There is a difference between “equal” and “fair” and no one has the right to receive anything from a parent. It’s your money and your choice to distribute it as you see fit.
You can also leave a “letter of instructions” in your will. These are often used to detail various issues such as a list of life insurance documents, bank statements and tax returns, and how you want your personal belongings distributed, etc. But you can also detail the reasons why you left one child X and the other child Y. You can also include a “no contest clause.” If an heir contests the will and loses, they lose their inheritance.
There is no right or wrong way to do this, provided you are completely clear about your intentions and draft a will with the help of a specialist trusts and estates lawyer; each will is unique. If a parent loses a child, for example, they may choose to leave that portion of their deceased child’s inheritance to that child’s children. You provided financial help to your son when he needed it most, and I hope he comes to understand that.
Next, a legal consideration. It is important that you prepare now because, as with many cases of family loans, they are not registered as a standard loan agreement, which means that the money you gave to your son is probably, in the eyes of the law, a gift. California does not have a gift tax, but there are federal taxes. You can donate up to $18,000 in cash or goods without having to report the donation on your tax return.
There are good reasons for debts to be recorded, lest they be considered a gift. “When an heir or beneficiary owes money to a deceased person, a signed acknowledgment of the debt or an agreement to deduct it from the beneficiary’s share of the estate must be located,” according to the BPE legal group. “Additionally, significant tax consequences could arise when a debt is forgiven or written off. »
If there is no record of the money you gave your son and you leave him $100,000 and you leave your other child(ren) $200,000 each, he could… as direct beneficiary — contest the will and claim that your children forced you to leave them more money than you left your son. You might think it’s unlikely, but people do the strangest things when there’s a lot of money at stake in an inheritance.
Concrete example : This letter was almost the opposite of your dilemma: the son in question, who was living in an assisted living facility at the time he wrote me, said he was upset that his late mother had gone ahead and deducted his debt to her for his inheritance. In this case, he borrowed $20,000 in 1996 and only repaid $5,000 in the following years. As he told me, “I need every penny of my inheritance.”
Money should be a gift rather than a burden. Enjoy your freedom.
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