One solution is to create a testamentary trust, which will ensure the black-sheep child will receive an inheritance once the parent dies. By placing specific conditions on the trust, parents can control how and when the money is spent.
“There are trusts that you can set up where the money can only be used to pay for education,” Ms. Blades says. “Or you can make sure that if the child files for bankruptcy, you will not end up paying the creditors.”
Sometimes parents choose to take into account that they have spent more on one child during their lifetime – as in the case of a professional student – and leave an unequal distribution at the time of death to make up for that.
Although parents have no obligation to treat their children equally, many feel guilty if they do not, says Ms. Blades. Some worry about the optics of giving one child their share outright while putting another’s in a trust.
One way around that is to put both children’s inheritance in a trust but place more stringent conditions on the black-sheep child’s access to the money.
“Parents don’t want to make it look like they love one child more than the other,” Ms. Blades says. “So this is a satisfying solution. At first glance the distribution looks equal, but the money in one child’s can in effect be a lot harder to get at.”
Some parents feel responsible for how their black-sheep child turned out. “There can be tremendous guilt from the parents. Sometimes they feel obliged to put something in the will saying why they included or excluded them,” Ms. Blades says.
Mr. Fish says parents can unknowingly create problems for the “good” child by favouring him or her in their will. “The biggest challenge is to create peace for the favoured child: to come away knowing you have made their position as free from conflict as possible.”
Making one child the trustee of the other’s inheritance, or the sole executor of the will, often ruins relations between brothers and sisters, he says.
“I have seen children beg their parents not to be harsh because they have to have a relationship with their sibling.”
One solution is for parents to “thin out” their estate, basically giving children some of their inheritance while still alive, Mr. Fish says.
Although minimizing the tax hit is a key consideration when estate planning, Mr. Fish cautions against emphasizing that alone. .
“Do not create a situation which is going to create turmoil for those who follow you by giving them a tax advantage,” he says. “The prevailing consideration should be how life will be for those you leave behind. I have seen people’s whole lives altered by a failure to address that.”
Roma Luciw is the web editor of the Globe Investor personal finance site and writes for the Home Cents blog.
