Leaving Everything to One Child is Often a Recipe for Disaster

Many families have someone they naturally turn to when they need help making decisions or managing family matters. Perhaps it is the oldest child, the one who manages the parents’ finances, or simply the sibling everyone trusts to make sensible decisions. For some parents, leaving everything to that child with the understanding that they will share the inheritance with their siblings seems like an easy way to settle their estate.

But that arrangement may not work the way the parents intended.

Consider a parent with three children who wants each child to receive an equal share of the estate. Rather than naming all three as beneficiaries, the parent leaves everything to the most responsible child, trusting that child to divide the inheritance after death. The parent may even discuss the arrangement with the family, believing everyone understands what should happen.

The problem arises when the estate planning documents name only one child as the beneficiary. Depending on the circumstances and applicable state law, that child generally has no legally enforceable obligation to share the inheritance, regardless of what the parent said during life. Even when the child fully intends to honor the arrangement, the other siblings will often have difficulty enforcing a promise that the documents do not reflect.

The distinction between a beneficiary and a fiduciary matters here. A parent can name the responsible child as executor or trustee and authorize that child to administer the estate or trust for the benefit of all the siblings. That arrangement gives the child responsibility for carrying out the parent’s written instructions without making that child the sole beneficiary.

Leaving everything outright to one child can also introduce problems that have nothing to do with trust or family relationships. If the child encounters financial difficulties, creditors may have access to all of the inherited assets. If the child dies before distributing the property, the remaining inheritance will typically pass under that child’s own estate plan. Transfers to siblings will likely be treated as taxable gifts from the child rather than an inheritance from the parent, potentially creating gift tax reporting obligations.

Similar problems can arise when parents add one child as a joint owner of a bank account for convenience. Depending on the account agreement and state law, the account may pass directly to that child at death, even if the parent expected that child to share the funds with the other siblings. The surviving siblings may then disagree over an arrangement they thought everyone understood.

Parents can avoid much of this uncertainty by putting their actual wishes into their estate planning documents. A will or trust centered plan identifies each beneficiary, specifies the intended shares, and names the responsible child as the personal representative or trustee who will carry out those instructions. Proper planning also coordinates beneficiary designations and the titling of assets so that property does not  pass outside the intended distribution.

Trusting a child to do the right thing is understandable, but an inheritance should not depend on an informal family promise. If your current estate plan leaves everything to one child with the expectation that the child will share it with siblings, contact your Estate Planning attorney immediately to make sure your documents actually accomplish what you intend. Addressing the issues now may spare your children from having to resolve a disagreement over what you meant after you are gone.

Jensen Puno
Staff Attorney
American Academy of Estate Planning Attorneys, Inc.
1825 Gillespie Way, Suite 205
El Cajon, CA 92020
Phone: (858) 453-2128
www.aaepa.com