Author Topic: How do you handle your will for children/assets if both you and your spouse die?  (Read 4689 times)

ender

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My wife and I are pretty good at most personal finance things, except having a will. We're making a will now and one of the prep questions is something like:

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What happens to your assets if you and your spouse die?

We have a kiddo. Our family already is willing to cover the "who raises baby ender" in that situation.

But... between life insurances and our assets, if we both get hit by a bus, that's a lot of money that suddenly baby ender has (congrats baby ender is FIRE!). We're not particularly sure what makes sense as the extended family who would raise baby ender are not particularly the most financially savvy. We do have at least one family member who I think would do a good job as trustee.

Our current idea is to have the responsible family member be trustee or otherwise take control of our estate, baby ender goes with other extended family, and presumably the trustee would give them money from our estate throughout baby ender's childhood.
 
Neither of us is really sure what is common or even a good/possible idea though.

What is common for folks to do as far as will goes in the parents both die scenarios?

Paul der Krake

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That sounds like a bad idea honestly. You're broadcasting that you're trusting family member A to raise your kid, but not so much to let them manage your kid's money. They then have to go argue their case to family member B when the kid needs braces or summer camp money or whatever. Bit of a slap in the face.


ender

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That sounds like a bad idea honestly. You're broadcasting that you're trusting family member A to raise your kid, but not so much to let them manage your kid's money. They then have to go argue their case to family member B when the kid needs braces or summer camp money or whatever. Bit of a slap in the face.

Hm.

I guess I can see this being that way...  though in this case B is the grandfather at least so it'd be less awkward.

Margie

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This is actually what our lawyer told us to do....pick someone to raise child and another to dole out the money.  Otherwise, the money could be all spent very quickly and could, if the person is not financially savvy, end up in the 'family' account which could then be split in half in the event of a marriage break down.    Many people aren't great with large sums of money.  As well, you would have to think the person you picked to raise your child will also be grieving your loss which may hinder their ability to think rationally for a bit.

Also told us to put a certain percentage aside for post secondary education so even if all the money was spent at least your child would get an education and could hopefully get a decent start in life.


Michael in ABQ

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This is where a trust comes into play.

Frankly it's on my list of things to do as we have a lot of kids and if my wife and I were both hit by the proverbial bus, our children would get about a million dollars between two two of us - plus Social Security survivor benefits which aren't nothing.

One of my wife's siblings is named in our will as the one who will get custody of our kids and our parents are both too old to be raising a bunch of kids. All our life insurance is made out with each other as the primary beneficiary and the kids as the secondary.

We should really setup a trust that would be the secondary on any insurance and other assets (401k, etc.) that would then have specific directions like "invest the money from the trust in index funds and pay out 5% per year for the care of the children". Or specify that when the turn 21 or 25 or whatever arbitrary event/date they get X dollars or X percentage of the remaining principal. Obviously you could really get into the weeds with this.

The person we trust to raise our children right now we also trust to handle a million dollars for their benefit. Otherwise we wouldn't name them. However, we just haven't made it a priority to spend $1,000+ to get a lawyer to draft up all those trust documents and appoint another relative as the trustee.

secondcor521

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You can create a testamentary trust via your will, then name the testamentary trust as the beneficiary of your assets.  In the trust instructions inside your will, you can name a trustee and a distribution schedule.  It's common to dole out money for HEMS (health, education, maintenance, support), college, and then the remainder at certain ages or reaching certain milestones (high school/college graduation, full time job, house purchase).

Even if you don't do anything though, my understanding is that if your child has not attained the age of majority in your state (commonly 18 to 21) if they inherit assets directly, then the probate court will appoint a custodian to manage the funds on the child's behalf until the child reaches the age of majority, so it really becomes a sort of a trust in this scenario anyway.

Kmp2

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We picked opposite sides of the family - one to dole out the money and manage assets, and one to raise the kids... in theory it means they have to keep seeing the other side.
And it puts a second set of eyes on the child expenses. We did write a letter to the money manager to be generous and listed some expenses that we would see covered that wouldn't necessarily just be for our kids - we really didn't want ending up with our kids (3!) to be career ending for instance. So we included Nanny expenses, house cleaning while our kids are small and even funds for a larger house  - we also stipulated to ensure enough remained to pay for education - so to put that aside first.

Note the letter is non-binding, but it's supposed to be helpful so they don't have to guess at our wishes.

We also wrote a letter to the future guardians of our kids outlining our values.

Lucky Recardito

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FWIW, DH and I are the back-up guardians for our friend's child (first choice is family, so we'd only get called into play in a real freak happenstance) -- but I am the financial custodian either way. Said family is good and loving and would raise the child well, but is horrible with money. Everyone is aware of the set-up and I don't think any noses were out of joint. Point being, I think it is not a weird arrangement to have separation here.

(and also sort of PTF, because we are overdue to create our will and plan for our children as well... always good to get a kick in the pants there...)

Imma

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That sounds like a bad idea honestly. You're broadcasting that you're trusting family member A to raise your kid, but not so much to let them manage your kid's money. They then have to go argue their case to family member B when the kid needs braces or summer camp money or whatever. Bit of a slap in the face.

Hm.

I guess I can see this being that way...  though in this case B is the grandfather at least so it'd be less awkward.

I think honestly if a family member would react in such a childish way, they wouldn't be suitable as guardians. In a shop when you count the cash register you do it together with a coworker, because of the 4 eye principle. In any accounting department any payment will need to be signed off by two people. The two eye principle is the norm and I would be very careful if someone wasn't interested in following that norm. It's not a good sign.

 It would be very unusual and also irresponsible towards your child to just hand over their entire inheritance to someone else to spend as they see fit and hope it works out. I actually doubt the legal guardian would be super happy with that arrangement either. They might be very good at raising your child but few people know about investing and taxes and handling large amounts of money. It may make them nervous. Even if the guardians have your child's best interest at heart they may do stupid stuff like messing up taxes or selling off all your investments to put it in a savings account so it's gone by the time your kid is off to college.

If there's someone in the family who is an expert, I'd appoint them (preferably someone who is not dependent on or too close to the guardian).  If not, it may be better to hire a professional. Personally, we don't have kids but I have a young-ish Boglehead great-uncle. That's who I'd ask. But I wouldn't ask him to raise my child and he'd never want to do that either. The person in our family who we'd want to raise our child hates thinking about money. Boglehead uncle is very comfortably FIwealth and would not be tempted to get his hands on the money.

I like the suggestion of a letter like @Kmp2 wrote. The more clear your wishes and values are, the more the guardians can act on that.

TrMama

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This is also how our will is set up. One person gets the kids, and someone else manages the money. Similar to Kmp we had a discussion with both that we expect them to be quite generous. If the guardians want to buy a bigger house (their current one might not be a great fit), a bigger car and hire a nanny we fully support the decision. We also pointed out to both parties that in the event our kids become orphans, the person charged with looking after them will have their hands full just with that. The other person will deal with the estate so the guardian isn't overburdened.

Frankly, if I'm ever asked to be the guardian for someone's kids I wouldn't be at all offended if the estate were handled by a trustee. Frankly, as long as the trustee was reasonable, I'd be happy to outsource this so I could just focus on the child, or children. Plus, as pointed out, an extra set of eyes isn't a terrible thing.

mm1970

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We have a will and trust.  Everything goes to the kids in trust, the BIL and SIL get the kids, but they get to decide how to spend the money too.

They aren't bad with money, they are almost empty nesters, and we trust them with our kids and the few mil.

(They are the people we would trust the most with this money, TBH.)

MaybeBabyMustache

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This is also how our will is set up. One person gets the kids, and someone else manages the money. Similar to Kmp we had a discussion with both that we expect them to be quite generous. If the guardians want to buy a bigger house (their current one might not be a great fit), a bigger car and hire a nanny we fully support the decision. We also pointed out to both parties that in the event our kids become orphans, the person charged with looking after them will have their hands full just with that. The other person will deal with the estate so the guardian isn't overburdened.

Frankly, if I'm ever asked to be the guardian for someone's kids I wouldn't be at all offended if the estate were handled by a trustee. Frankly, as long as the trustee was reasonable, I'd be happy to outsource this so I could just focus on the child, or children. Plus, as pointed out, an extra set of eyes isn't a terrible thing.

Basically, this. It will be a tremendous amount of money (due to very generous death benefits at our mutual employer), so my parents will have completely adequate resources & my sister would be in charge of the trust. We've encouraged her to hire a financial planner, given the situation.

Cranky

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I think it would be better to find an outside trustee, someone with fiduciary obligations. I'd talk to an estate lawyer, honestly. I'd also set it up so that a certain percent of the money is available at set times or events.

Dh and I inherit the grandboy in case the most terrible thing happens. We can afford to raise him, so any other money would be for education. We all have elaborate wills and paperwork set up for this possibility, and the main stipulation is that the other grandmother is allowed no contact.

But, my own observation is that when there's a pile of money, relatives suddenly appear, so best to have it all sewn up the way you want it.

shelivesthedream

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We ticked all the standard boxes on my union's free make-a-will form, and the bog standard option is to have one guardian (or set thereof) to do the looking after and two trustees to look after the money.

The important thing, which we really must get round to, it to leave a Letter of Intent about how you want your children to be brought up. This will inform both the guardian(s) and the trustees and can be in as much or as little detail as you like. It can cover anything you want, from education to values to holidays to visiting your family.

We are planning to leave the management of the money very open - just that they put it mainly in index funds or equivalent and dispense it prudently with an eye to it lasting until the youngest child is 18. (Obviously depends on when we die and how much there is!) But we have a lot more instruction we would like to give the guardians about our hopes for our children (currently 2.5yo and 9m) - which is a hard discussion to have because it really forces you to lay out your joint plans for your children's futures without knowing much about what your children will be like as people.

If you think the guardians might be sniffy, you could also explain why there are separate trustees in your Letter of Intent and reassure them that it's not because you don't trust them. After all, you do! It's more important to put your kids with people that you trust than your money!

MissPeach

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I would recommend looking into trusts in your situation if you have a lot of assets that would need to go through probate. A will alone will not protect that.

I put into mine who would manage the finances of the trust and for what it will pay for and when the kiddo can get the money. This is another benefit of having a trust over just a will.

Morning Glory

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This is on my list of goals for the year and I haven't gotten on it yet. We have about 600k assets including house equity plus my life insurance from work which would be about 200k.

 I have 2 brothers who are responsible people. Brother 1 has a spendy pants wife and brother 2 is only 25 and supporting his wife through professional school. I think maybe 1 can be the guardian and 2 can be the trustee.  I don't want my parents involved because they had a nasty custody battle that ended with my dad leaving the country. 

 Husband's parents are deceased. He has a sister but she is spectacularly irresponsible with money. She also has never helped us when we needed it. We took her and her children in when she was homeless and let her stay with us five months for free and she can't even babysit for us once in a while.  She also lives closer to us than either of my brothers.

TLDR I need to get on this shit.

EricEng

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This is actually what our lawyer told us to do....pick someone to raise child and another to dole out the money.  Otherwise, the money could be all spent very quickly and could, if the person is not financially savvy, end up in the 'family' account which could then be split in half in the event of a marriage break down.    Many people aren't great with large sums of money.  As well, you would have to think the person you picked to raise your child will also be grieving your loss which may hinder their ability to think rationally for a bit.

Also told us to put a certain percentage aside for post secondary education so even if all the money was spent at least your child would get an education and could hopefully get a decent start in life.
Agreed, this is the right way to do it.  It avoids conflict of interest in the person raising the child if they also controlled the money.  If they have hurt feelings, tough, you are dead and they can resent all they want you won't care. 

We are doing exactly this with our own.  Wife's sibling will raise our kids, and mom will control the money.  Wife's sibling admits to being bad with money and the mom knows that while she is fairly good at managing money.
« Last Edit: November 30, 2020, 11:10:59 AM by EricEng »

ender

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We went back and forth on this and I think are going to have the trustee also be the guardian.

They might not be MMM levels of financially responsible but they are pretty strong Dave Ramsey adherents and honestly that's good enough.

EricEng

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We went back and forth on this and I think are going to have the trustee also be the guardian.

They might not be MMM levels of financially responsible but they are pretty strong Dave Ramsey adherents and honestly that's good enough.
Something to consider is your kids risk never seeing the money with that arrangement.  In the split arrangement the children have an advocate in the form of the caretaker to make sure they get their share from the trustee.  The trustee is removed from day to day life and less tempted to blow the money.  Checks and balances.  Put it all in one basket with no other adults aware or concerned, that is asking for corruption.

mm1970

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We went back and forth on this and I think are going to have the trustee also be the guardian.

They might not be MMM levels of financially responsible but they are pretty strong Dave Ramsey adherents and honestly that's good enough.
We did the same.

I mean, really, they are the only people we trust with our kids OR our money.

StarBright

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We have a will and trust.  Everything goes to the kids in trust, the BIL and SIL get the kids, but they get to decide how to spend the money too.

They aren't bad with money, they are almost empty nesters, and we trust them with our kids and the few mil.

(They are the people we would trust the most with this money, TBH.)

^ this is what we did too.

It took us a long time to pull the trigger because we couldn't decide who should raise our kids if we were both gone. A sibling on one side is the emotional preference (and there is a huge net of extended family near them), but they aren't great with money. This side also would have been offended to have caregiving responsibilities without financial responsibilities.

The sibling on the other side has no support network other than immediate family but they are great with money and we trust them to follow our directives. They also don't parent exactly like us, but they are wonderful and loving parents. Once we thought about it for a couple of years and got over how they were different than us, we realized this side was the obvious choice to care for our children and assets.

If we died tomorrow our kids would have several million between life insurances and various accounts. So we also designated 20% of non life insurance accounts to go to charities and organizations that we care about.

We will revisit our wills when the children are in high school because they will likely need rebalancing as our term-life ends and our non-insurance assets have grown.
« Last Edit: December 03, 2020, 08:09:17 AM by StarBright »

SimpleCycle

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We have a testamentary trust.  Originally the kids went to my mother and our close good with money friends were the trustees.  My mom is fine with money but I know her and handling that amount of money and responsibility would stress her out, even though she'd do a great job raising the kids.

But then my mom's situation changed a bit and she no longer wanted to be named guardian of the kids.  So now our close good with money friends are both our primary guardians and primary trustees.  We trust them implicitly, they are in a similar financial situation to us, and we absolutely know they would carry out our wishes for the children and the money.

There's no one size fits all answer to this - it really depends on your circumstances and those of your would-be guardians.  If I had any hesitation about whether our guardians were fit trustees, I would probably go with a paid trustee.  I would not put one family in charge of the money and one family in charge of the kids, because I think any conflicts could adversely affect my kids' relationship with either side of the family.

UpNAtom

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We took this a bit further and a trust gets set up if either one of us dies (not just both).  The logic I had behind this (and yes, it leads to a weird conversation) was that our children should be taken care of no matter what else happens after one of our passing (not just that the spouse is taken care of, but that the children are taken care of). 

Should one of us get remarried?  No matter what the new spouse does / doesn't do, the children are taken care of.
Should the one left become incapacitated?  Children taken care of.
Or any other number of things.

The caveat here is that there are enough assets/income left to the surviving spouse that they could stop working the next day if needed/wanted.  Grieve as much as needed, etc...

Laura33

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We have different guardians and trustees, although one of the trustees is the backup guardian.  We did this because we focused on the best qualities of the people involved -- not because we don't trust the guardian with the money, but because we don't want to burden her with managing it, because she might feel like she couldn't spend the money on things when we'd want her to.  Like, say, a larger house that would comfortably suit both her family and our kids, or nice family vacations with all the kids.

My sister is the guardian.  She's a family therapist and absolutely great with kids.  My mom and my BIL are joint trustees -- she's a self-made Millionaire-Next-Door teacher, and he's a CFO, so they both adore money and investing and are very good at it.  We also wrote a Letter of Intent that told them to be very liberal with the spending.*  It would be hard enough to lose both your parents/inherit two new kids without having to worry about money on top. 

*At the time, we were talking about $2M in insurance, so there wasn't a concern about running out of money.

MissPeach

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I created a trust where I have separate trustees and guardians with backups. You can specify an age to give the remaining money and what to spend the costs on.

In my case I said to pay for things like education. At a certain age kiddo would get the remainder.

The trustee is entitled to some compensation but they have to account for expenses the trust pays out.

marion10

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Not exactly the same but my sisters and I were beneficiaries of a trust established by my grandfather. My father was sole trustee. We got almost nothing- he stole from his own children. My kids are grown but our wills had one person for guardianship and one for finances. Thankfully, they are grown, so itís moot now.

Sid Hoffman

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Not exactly the same but my sisters and I were beneficiaries of a trust established by my grandfather. My father was sole trustee. We got almost nothing- he stole from his own children. My kids are grown but our wills had one person for guardianship and one for finances. Thankfully, they are grown, so itís moot now.
Sad and frustrating, and to some degree it highlights the fact that once we are dead, we should assume there's a very realistic chance that no matter what we've planned out, the living are going to do whatever they're going to do, regardless of our own wishes.

EricEng

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Not exactly the same but my sisters and I were beneficiaries of a trust established by my grandfather. My father was sole trustee. We got almost nothing- he stole from his own children. My kids are grown but our wills had one person for guardianship and one for finances. Thankfully, they are grown, so itís moot now.
Sad and frustrating, and to some degree it highlights the fact that once we are dead, we should assume there's a very realistic chance that no matter what we've planned out, the living are going to do whatever they're going to do, regardless of our own wishes.
All the more reason to not put all the power in one person as it corrupts.  Money management to one party, care of children to another who acts as a check on the money manager.  That way the children have an adult advocate who isn't in it for personal gain, but can hold money manager to task if they start to steal/squander it.

9patch

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Right now we have the kids being looked after by one person, and the proceeds going equally to the two kids. We wanted to set up a trust, but couldn't (one Canadian, one US). Once I get my US citizenship, we'll set up a trust.

Sugaree

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The plan right now is to have a trust set up and the trustee be someone different than the guardian.  There are several people in my life that I'd trust to raise my kid.  None of them are good with money.  I'm not saying my parents would have my kid living under the stairs like Harry Potter, but all three of them would probably take some really nice vacations on the kid's dime.

Mrs. D.

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Very timely post. We just met with a lawyer this week to get this set up. This has been a big life goal on the to-do list.

We are appointing a separate guardian and trustee. My sister will be the trustee; she is a lawyer, smart with money but will want to spend it generously on the kids. My parents will be the guardians until they turn 75; then guardianship transfers to a close friend of mine from childhood and her husband. The friend is a social worker with a background in counseling, husband is an educator with a ton of patience and energy for kids. We come from similar cultural/religious upbringings. Seems like a good fit. Everyone knows the plan and is on board.

Trickiest part of the arrangement was the transition of guardianship from parents to friend. Very difficult conversation to have with my mom as she thought 75 was an arbitrary cutoff. My mom will be 85 when our 3rd child (in utero) turns 18. She agreed that was too old to be doing childcare and it was better for us to determine the date of the transfer rather than leave it to others to hash out without our input. Ultimately I'm glad we had the conversation, but it was emotionally draining.

Mrs. D.

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We picked opposite sides of the family - one to dole out the money and manage assets, and one to raise the kids... in theory it means they have to keep seeing the other side.
And it puts a second set of eyes on the child expenses. We did write a letter to the money manager to be generous and listed some expenses that we would see covered that wouldn't necessarily just be for our kids - we really didn't want ending up with our kids (3!) to be career ending for instance. So we included Nanny expenses, house cleaning while our kids are small and even funds for a larger house  - we also stipulated to ensure enough remained to pay for education - so to put that aside first.

Note the letter is non-binding, but it's supposed to be helpful so they don't have to guess at our wishes.

We also wrote a letter to the future guardians of our kids outlining our values.

I thought this was a great idea and borrowed it kmp2. We just signed our wills and I have begun letters to the guardians and trustee with similar instructions and values statements. Thanks for sharing.

vivian

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I have a slightly different question on this topic. What type of arrangements do you make, if any, for the splitting assets equally among kids, even though some costs may not be equal? For example, our plan is to support each child's college education, but one may be more expensive than another. Or, given the age difference, one kid may be done with college while another still has that expense.

Hopefully we live to a ripe old age, and then we pay for everyone's college and then split evenly. But, we wouldn't say "oh, your college was $25K less, so your inheritance is more."

secondcor521

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I have a slightly different question on this topic. What type of arrangements do you make, if any, for the splitting assets equally among kids, even though some costs may not be equal? For example, our plan is to support each child's college education, but one may be more expensive than another. Or, given the age difference, one kid may be done with college while another still has that expense.

Hopefully we live to a ripe old age, and then we pay for everyone's college and then split evenly. But, we wouldn't say "oh, your college was $25K less, so your inheritance is more."

I have three kids and will probably have leftover college funds.  My plan to make it somewhat more equal is to distribute the excess in inverse proportion to how much I had to spend on their college.  So if kid #1 spent $40K, kid #2 spent 80K, and kid #3 spent $60K (<- not real numbers), then kid #1 would get the largest share of the leftover, kid #3 would get the next most, and kid #2 would get the least.  All three of my kids are fully aware of this.  I hoped to strike a balance between them not worrying about the cost and picking the best school for them, but also not ignoring costs entirely and giving them some incentive to economize.

I don't have any intention of making it more equal than that.  I would not, given the numbers in the previous paragraph, make an equalizing gift of $40K to kid #1 and $20K to kid #3.  In the grand scheme of things, the difference in college costs compared to what they will ultimately inherit is not a very big percentage.

shelivesthedream

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Our children are very young, but basically we intend to just give them an equal inheritance anyway. If there is a significant financial imbalance around life startup costs such that we felt we had to address it, we would give cash gifts at the time. Why make your kids wait til you die if being equal is that important to you?

However, we don't intend to just offer blank cheque for university. We intend to offer a pot of money for certain adult setup costs (e.g. university, house deposit, business capital) that they get to decide how to spend (with our approval).

Chris Pascale

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JJ-

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We have separate guardians and trustees, but we trust both completely so they are backups to each other in the event of one saying no. However they both are aware of our request and have said yes. 

One thing I haven't seen is how to treat real estate. While the kids are young we direct the house to be sold. However, after age 21 we do first right of refusal to the older kid to buy out the house from their sibling which reduces the older's payout. If the older says no I don't want it, the second gets to make the choice to buy the house as well. If neither of them want it it goes to list and they split proceeds. This is based on a costly experience I dealt with younger where upon passing I inherited a portion of a house and was just along for the tax nightmare ride when the majority owner didn't pay taxes.