IT PAYS TO KNOW: It’s Not Fair!!!

By JUDD MATSUNAGA, Esq.

Although I did not major in Japanese studies at UCLA, I do know that in ancient Japan, a tradition of male primogeniture (i.e., a rule of inheritance by the first-born son) is practiced. The first son remained under his father’s authority even after he had married and had children of his own.

The father remained the nominal head of the family until his death, relinquishing his actual authority slowly and gradually. In Japan, only the inheriting son stayed in the parental household. He could become head of the family any time between his marriage and the death of his predecessor.

However, here in the U.S., the Japanese American community (for the most part) practices more of an egalitarian inheritance, i.e., without discrimination based on gender and/or birth order. I am often told, “I love all my children equally so I want to leave them all an equal share.” In other words, son, daughter, oldest and youngest all get an equal share.

The problem is, for many families with more than one child, “fair” does not always mean “equal.” The real challenge of parenting is figuring out how to be fair to your children when, quite often, that doesn’t mean treating them exactly the same. Sometimes special circumstances need to be taken into consideration.

Although parents might hear “It’s not fair!” from children who confuse being treated fairly with being treated equally, parents should try to accommodate their children’s unique needs so that their estate plan strikes a “fair” balance. The following are examples of times when a parent may want to “re-think” his or her estate plan:

1. Child lives at home — Quite often, an adult child lives at home with the parent(s). That child is also Mom and/or Dad’s primary source of care and support. That child has no house of his or her own. Is it fair to that child if you give the other children (who have spent their entire adult lives in another town) an equal share?

Did you know that unless a provision is made in writing, that child can be forced to move upon the parent’s passing? Many families have the mistaken belief that if the house is inherited by three children equally, they all must agree before the house is sold. Not true. The law clearly provides a remedy for any “co-owner” (even a minority share co-owner) to force a sale. It’s called a real estate partition action — it’s actually a lawsuit.

Some families will try to avoid this problem by giving the family home to the child who lives with them. They may even try to “balance” the equities by gifting the savings to the other children who didn’t get the home. If there are insufficient funds to make it fair and equitable, a decision must be made.

One possible solution is to gift the home to all children equally but reserving a “right to occupy” by the one child. That right to occupy could be for a lifetime, or for a year or two to allow that child to find other living accommodations. More often than not, the child does not have to pay rent but does have to pay property taxes, homeowner’s insurance, utilities and upkeep and maintenance.

2. Special Needs Child — If you have a “special needs child,” i.e., receiving Supplemental Security Income (SSI), Medi-Cal, Section 8 housing, In Home Support Services (IHSS), food stamps, etc., leaving that child an “equal” inheritance will disqualify that child from those programs and he or she will receive no further benefits.

Instead, the parent(s) should establish a Special Needs Trust (SNT) in their living trust or wills. This trust would not be under the control of the child, i.e., the child could not revoke it and use the assets according to his or her own purposes. The trust would have an independent trustee (possibly a sibling), who would use the funds to supplement the government benefits.

The trust could also pay for services required by the beneficiary, such as telephone, education, car repairs, etc., without affecting the beneficiary’s eligibility for the government programs. In addition, the SNT has no obligation to notify the state or pay back Medi-Cal payments after the beneficiary’s death because the beneficiary did not own the assets.

3. Child doing well financially — I hope that all of your children are doing well financially. Occasionally, one child is doing exceptionally well in the business world (e.g., a daughter who marries into wealth) and doesn’t need your inheritance. Although you may “love all your children equally,” there’s no law that requires you to divide your estate equally.

Based on “need,” parents may want to provide a larger share to the child with a lower income and/or a larger family to support, especially if the other children are more financially established. In their estate plan, they can provide for a larger share to go to the children, or even to the grandchildren, that need it the most.

4. Lifetime Gifting to one child —  If parents have been financially supportive of one child, but not another (a more financially independent child), they may or may not want that taken into consideration in their estate planning. Most parents might intend for the lifetime gift to be extra because that child needed the help.

However, the child who didn’t receive the lifetime gift(s) might not see that as being quite “fair.” If the debt isn’t paid back before the parents die, the more financially independent child might expect the debt to be paid back to the parent’s estate out of that child’s share who received the lifetime gift.

Chances are, if in a position to do so, most parents would want to financially help out a child in need. That gift can either be: (1) just a gift and not expected to be paid back nor deducted from the receiving child’s share; or (2) to be completely “equal” all around, to be deducted from the receiving child’s share.

It’s your estate, you can do anything you want. But, either way, it would be best to put your wishes in writing to avoid arguments and hurt feelings after you’re gone. A simple solution we use in our trusts states that any gift, purchase, payment made by the parent on behalf of a child is forgiven, and the parent’s remaining assets are to be divided equally.

5. Disinherited child — Occasionally, a parent may be estranged, or deeply disappointed in a child. If this is your situation, I wish you and your family a speedy and happy reconciliation. In the meantime, there are some mistakes that parents often make in disinheriting a child that you would want to avoid in your estate plans.

First, don’t simply fail to mention them in your will or trust. That would likely lead to a “contest” in court. Your will or trust could contain language such as, “I am intentionally disinheriting Joe for reasons I deem to be good and sufficient and therefore, for all purposes of this will (or trust), Joe will be deemed to have predeceased me.”

Second, in movies and TV, we see a disinherited child receiving $1. It might “glamorize” the idea of being disinherited in Hollywood, but in real life this is a bad idea. It makes the disinherited child a beneficiary of your estate and allows him or her the legal right to obtain information about your estate.

In conclusion, a family “understanding” is not enough. The courts are full of brothers and sisters fighting over parent’s estate. Each family is unique, with different dynamics. An experienced estate planning attorney can help you settle on the plan that best meets your family’s needs so you’ll never again have to hear, “It’s not fair!”

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Judd Matsunaga, Esq., is the founding partner of the Law Offices of Matsunaga & Associates, specializing in estate/Medi-Cal planning, probate, personal injury and real estate law. With offices in Torrance, Hollywood, Sherman Oaks, Pasadena and Fountain Valley, he can be reached at (800) 411-0546. Opinions expressed in this column are not necessarily those of The Rafu Shimpo.