Q: Over the years, I have gifted money to my son and didn’t make similar gifts to my other children. He was in need and I helped him out. I don’t expect him to pay me back but I feel like those gifts should somehow be accounted for in my estate plan. What can I do to even things out with the other kids?
A: Your situation is not at all unusual. I’ve seen similar issues many times over the years.
The answer to your question is to treat the gifts as advancements. An advancement, as the name suggests, is simply giving a person a portion of their inheritance prior to death.
An advancement can be easily addressed in your estate plan. Simply bring it to the attention of the attorney and ask him or her to address it in your will or trust.
The way it would work is pretty simple. Let’s assume that you have four children and that you advanced $50,000 to one of them. Let’s also assume that you left an estate worth $350,000 at the time of your death. You would add the $50,000 back in so that the estate would be worth $400,000 divided four ways. Everyone would receive $100,000 from the estate except for the child that received the advancement who would receive $50,000, as well as the $50,000 already advanced to him.
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In years past, treating a gift as an advancement could have been an issue since it would likely have been subject to inheritance tax. With the elimination of the Indiana inheritance tax, acknowledging an advancement became less of an issue.
Another option would be to treat the money as a loan. You could ask your son to sign a promissory note. The promissory note would then be treated as an asset of the estate after your death and dealt with accordingly.
The downside of treating the money as a loan would be interest. The IRS imputes a minimal amount of interest on loans which may need to be taken into account. Another concern would be if your son contended that he paid you back for the loans and that nothing was owed on the note. In that case, your estate may find itself suing your son to determine the validity of the debt. Not a pleasant prospect.
Whatever you decide, definitely bring up the money given to your son when you meet with the attorney. The attorney will advise you accordingly and may have other ideas about how to deal with it. A little bit of planning could resolve the issue and make if fair for all of the children.
Christopher W. Yugo is an attorney in Crown Point. Chris’ Estate Planning Article appears online every Sunday at www.nwi.com. Address questions to Chris in care of The Times, 601 W. 45th Ave., Munster, IN 46321 or to Chrisyugolaw@gmail.com. Chris’ information is meant to be general in nature. Specific legal, tax, or insurance questions should be referred to your attorney, accountant, or estate-planning specialist.