I received three reader emails in the past week about estate planning and children. First, from Doug:
My wife and I are about to have our first child. What steps do we need to take care of to make sure our baby girl has a good life if something were to happen to her parents?
The second is from Mindy:
Now that my kids are fully grown, I’m looking at redoing my will. I am struggling with what to leave to my children. I am a single widow with no plans to remarry and I don’t have any charities that are near and dear to me. Should I just give them everything equally? What if they have different income levels?
And the last one is from Meg:
I plan to have my estate split equally to fund the college educations of all of my grandchildren and just skip my kids. They all have good jobs and all of them have at least one child.
These three people are in very different stages in life, but they’re all struggling with the same question: if something happens to me, what should happen with my finances in terms of taking care of my family?
First of all, if you are a parent, I think you have a responsibility to have an estate plan in place that will take your children to adulthood. You should have a guardian in place for them as well as either enough assets after debt or enough life insurance to take care of that child’s needs into adulthood. So, for Doug, I would look at a term life insurance policy for both you and your wife, as well as a will that clearly indicates who should be the guardian of your baby girl. Here’s the Simple Dollar’s Guide to Life Insurance.
On the other hand, when your children reach adulthood, all bets are off.
There is no single formula that tells you how you should handle your estate with regards to your adult children. It depends on your own beliefs, your relationship with your children, and, frankly, their relationship with each other. You certainly do not have to leave a dime to any of your children, nor do you have to leave equal amounts to all of them.
What do I plan to do? Well, for right now, we have young children, so we have sizeable life insurance policies and a wonderful couple in place as their guardians in the event of a crisis. That’s taken care of.
When they reach adulthood, my inclination is to tell them that they’re getting nothing at all during most of their financial planning so that they plan for their own financial lives independent of us. If we do choose to leave anything to them, they won’t know it until after we pass away. We want our children to be as independent as possible, and knowledge of an eventual windfall promotes dependence.
Part of our private decision in that regard will probably come down to how they’re living their lives. It’s important to remember that just handing cash to someone in an unstable situation won’t suddenly make that situation stable. An unexpected inheritance only solves problems if that person is already normally solving life problems successfully on their own.
More likely, we’ll give a significant portion of our estate to charities that are solving global problems like hunger, clean water, and basic education.
Again, that’s just our take on the situation. There is no right or wrong answer to this question. You simply have to trust your heart when it comes to your estate and your adult children.
I don’t believe you are required to leave your estate to your children or to anyone else. It’s your estate to do with what you please.