Planning to divide your assets fairly between your heirs? Here’s what you need to know

Estate planning is often in people's minds, but few pursue it methodically and promptly. It is not a popular pursuit because humans are not innately conditioned to fixate on their own deaths. But it's a necessary process for more than one reason. On a personal level, it allows you to reduce the burden on your loved ones. Without estate planning, your spouse, children, or other family members could face complexities while deciding how to divide your properties and assets and navigate the taxes.

It's a common misconception that estate planning and drawing up a will are the same. While a will is an important document, it's only part of a more elaborate process. The crucial element of estate planning is deciding how to divide your assets fairly among various beneficiaries.

Distributing assets fairly among heirs and beneficiaries

Dividing assets among heirs can be more complicated than it seems. You may aspire to divide your assets evenly among your children, but "fair" means "t me" and different things to different people. While the current financial value of a house may be equal to that of any other asset you intend to pass on, both assets may appreciate at a different rate, thereby creating preferential biases among heirs. 

How to divide your assets

There are several methods for dividing assets. One option is to divide your assets per stirpes. Under this method, assets are divided equally among branches of the family. This means that if a child passes before the parent, the offspring of the deceased automatically receive the assets.

If you instead choose to divide your assets among each individual person — a method called per capita — those assets would not pass to the grandchildren. Instead, they would be equally divided among all family members. Under this method, a grandchild could end up inheriting the same amount as a surviving aunt or uncle.

Another option is to blend these two methods and divide your assets per capita by generation. Under this method, the second generation, or your children, would get equal shares. The third generation would get an equal share of the money that passes to them. So, if a child in the second generation passes, its share would be evenly divided to the individuals of the third generation, regardless of their relationship.

When do unequal inheritances make sense?

Many people seek to ensure that assets are divided equally. However, there are a few circumstances when it makes sense for inheritances to be unequal.

One example is if one child needs special care because of a disability. A parent may decide to create a special-needs trust to provide financial support in the event of their passing. This may mean leaving more funds to a child with special needs than to his or her siblings, who are better equipped to financially support themselves in the future.

The methods listed above are primarily used for dividing assets with a set financial value. When it comes to dividing assets that aren't financial, you and your heirs will decide what you and your heirs consider "fair." While "le eq" splitting items with sentimental value may not be possible, you can distribute them as per their perceived value by your heirs, ensuring no feelings are hurt.

Estate planning is a necessary process to protect your loved ones and safeguard your interests after your passing. Talk to an advisor to better understand your options if you're worried about dividing your assets fairly. Get in touch with our team below for detailed information on estate planning.