Except that sometimes, maybe, it’s not. Sometimes it gets more complicated.
Generally, parents and grandparents who have managed to accumulate some security and wealth, and who are close to family members, have a plan for those hard-earned assets that includes their kids and grandkids—sometimes charities, too. And nearly always the family traditions, the stories, and the heritage are even more important than the material assets left behind. Especially in the last 140 years, families still have lingering memories of living through hard times—like for German families in Serbia in WWII, like in the South after the Civil War, or for families struggling during the 1930s depression. Some family members will be more empathetic and interested than others when it comes to family heritage of course. And this is doubly true when it comes to the grandkids who may really not care that much.
Most folks do want their kids to share equally in their estate at their deaths—even with all the blended families we now have. And, while many are very close to their grandkids, some grandparents are actually estranged from theirs. And for some grandkids, the feeling is mutual. All grandkids aren’t necessarily always chips off the old family block—and sometimes not really stellar citizens either. Maybe they’re really not bad kids but their whole life’s focus is on supporting the rebels in Balookistan (where, they think, your money could really come in handy).
So, in planning for asset distribution, the goal is to make enjoyment of your assets possible for all of your children, but perhaps it’s also to prevent the enjoyment of those hard-earned assets by some of the kids or grandkids that you really don’t even know that well or care about. How to do that is the question.
One way could be to use life insurance and annuity products—sometimes in conjunction with a trust. It often will depend on what the assets look like. Some things haven’t changed. Where a particular asset like your family home or the lake place could be prized by one or two kids, those assets and the expenses that come with them are not desired at all by the others. So, assets can be distributed considering family traditions in addition to division along the lines of “equitable” economic value.
Often most or all of your assets like real estate would be sold off and the money distributed in cash. Or sometimes investment assets or income property with large capital gains might be appropriate for particular kids and not for others.
Of course we all know that families can often easily use life insurance as a compensating asset for some family members who weren’t ideal choices to leave the family business or the lake place to. Last survivor life insurance can be great for this since the cost for leaving one guaranteed income tax free dollar is very inexpensive. For a fairly healthy male and female grandparent couple, they could do it for about one percent of the policy face amount per year. They’d have to live a hundred years to break even on that deal.
In any event, once decisions have been made as far as your children’s inheritances are concerned, what are the consequences if a particular child were to then later die? The answer is that their family is going to get your assets. Is that OK? Or not?
In many cases, once your estate is liquid you might create and fund a trust for that child you love. Since you really don’t know or communicate much with their spouse or their kids at all, the trust could provide a monthly income to that child for his or her lifetime or for period certain—like ten years. (That configuration would, of course, depend on your child’s current age and his or her health—and how old he or she is likely to be at your death. It’s a guess but you have to start somewhere.)
The income from the trust would ensure that your son or daughter is going to have a more enjoyable and secure life—along with some memories of dad and mom each month for years to come. But, you also have the ability to direct the inheritance in a new direction should that child not live to the end of the term period you set up. So if your son or daughter had a 10 year guaranteed payout but died in six years, the trust could then redirect money for the remaining years to your church or the Humane Society instead of to his or her family. The grandkids can go to work and maybe then appreciate you more… And, again, a (last survivor) life policy or an annuity could be an ideal funding tool to guarantee money to the trust for your payout plan.
With advice from your own estate planning attorney, you might arrange the same result with an immediate (income) annuity without using a trust—with some special attention to the contingent beneficiaries.
Existing annuities could have endorsements for the contingent beneficiaries—and if assets were turned into cash your executors could be instructed that one child’s distribution share would only be available if he agreed to do it through the new SPIA in which he would be annuitant and annuitize immediately with the restrictive endorsement (no surrender or changes)—and he’d have to agree to the terms of it or he just wouldn’t get any of it. He’d have to agree that, at his death, any remaining payout would go to your local Humane Society. Irrevocable. Period. Or else.
Sounds draconian, and again, a trust set up after your death to spell it out might be better, especially if your insurance company couldn’t provide the documents and administration. Your executors would just need the instructions. As to an arrangement where your child would not own the annuity, it would require a trust to hold the annuity for them where you would direct the terms of the trust.
If you re-directed the remainder of the income years (should the child not live to receive all the money) it might be preferable not to redistribute it to the other children or grandchildren since it could cause additional family discord. A charity might be preferable.
You really aren’t heartless in doing this type of planning. After all, it’s your money and you want it to always do good things.