This question is related to my 94-year-old mother’s estate planning.
Her only heirs are my brother and I. We are both retired and in our mid-60s. My wife and I are childless, not by choice, but it’s how things worked out. My brother has a daughter, to whom my wife and I are godparents. Mom’s estate consists primarily of a traditional IRA of $55,000, from which she has been putting her required minimum distributions into a brokerage account of $130,000. There’s a $100,000 CD and a home valued at $900,000.
About 15 years ago, we set up a revocable living trust for her with my brother and me as co-successor trustees. The home and the brokerage account were titled in the name of the trust. The trust indicated that everything is to be split 50/50 between my brother and me. We were both set up as beneficiaries of the IRA. The CD is held jointly between my brother and my mom, with verbal instruction that it is to be split between him and me upon her death.
Surprise estate plan
My niece/goddaughter is my mother’s only grandchild. When she was 5, my wife and I prepaid four years of her college tuition at a state school. Our mom subsequently set up a 529 account for her, amounting to about $80,000. Mom later also set up a UTMA custodial account for her valued at around $35,000. The girl has grown up to be an extraordinary young woman. She graduates with her bachelor’s degree this year. My wife and I will leave the majority of our own estate to her.
Mom is in remarkably good shape both mentally and physically for her age. I’ve noticed some very small cognitive declines but nothing out of the ordinary considering her age. She lives alone, takes care of herself and socializes with her older sister and the few friends she hasn’t outlived. I hope we have her around for many more years. She has recently talked about selling her home of 65 years and moving to a condo.
She has stated that she wishes to distribute the proceeds of her home sale three ways — among my brother, his daughter and myself. I don’t wish to be petty and I recognize 100% that these are her assets to do with as she pleases. At today’s value, my share of the home alone would be valued at $300,000 per the trust. If she sells and distributes the funds three ways, my share becomes $200,000.
Is this equitable?
Brother, Husband, Uncle and Son
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
Dear Brother,
Your mother’s granddaughter is like the daughter she never had.
She has two sons and a granddaughter who she obviously loves as much as she loves her sons. Like you, she holds this young woman in extremely high regard. If your niece is in her 20s now, she will be in the prime of her life when your mother passes away, so this money will make a massive difference to her quality of life. She’ll be able to buy a home and put the lion’s share of her savings aside for retirement. You and your wife will continue to live in comfort. As a side note, I generally don’t advise putting assets like CDs in a third party’s name and relying on a verbal agreement.
I don’t advise putting assets like CDs in a third party’s name.
Downsizing and putting her assets in a trust is a common step for someone to take at your mother’s age. It also helps provide financial support should she need to go to a nursing home, assuming she does not have long-term-care insurance. A private room in a nursing home can cost up to $10,000 a month, so if your mother was there for even five years, it could eat up more than $500,000 of her estate. Out-of-pocket expenses for in-home care can also be considerable. She’s fortunate to have her sister, friends and immediate family close by.
If you can look at the familial landscape through your mother’s eyes, you may be able to let go of the idea of what’s fair and what’s not fair. I’m not saying few hundred thousand extra wouldn’t help you with nursing-home costs in your own old age or allow you to travel more than you’re now able to do now or give you the freedom to make those renovations to your home, but you will get enough when the time comes to do enough, and what you lose in financial investment and spending power you will gain in pleasure, I hope, in seeing your beloved niece progress further in her life.
Two or three heirs?
You say your mother only has two heirs, you and your brother, but she now has three: you, your brother and your niece. If she were to die without a will, you and your brother would be considered her direct descendants. But she has decided to make a trust and, as she is free to do, to now amend that trust. That’s why it’s a revocable rather than an irrevocable trust. It’s open to amendments. Your mom has decided that she has three heirs, because that’s her choice. She has decided it’s an equitable and equal distribution, based on her closest relationships.
Technically, of course, there’s a difference between an heir (your brother and you) and a beneficiary (your niece). “‘Beneficiary’ is often used interchangeably with ‘heir,’ but its meaning is very different,” according to RNH Law in Frankfort, Ill. “A beneficiary is someone who is part of your stated plan because they are someone you have designated to receive your money or property through written documents such as wills, trusts, retirement account, or insurance policy beneficiary designation forms.”
Expectations, as we all know, can lead to disappointment.
Fairness is relative. As one member of the Moneyist Facebook Group commented: “My parents left 25% to me and 25% to my brother, and the remaining 50% was given to 10 grandchildren who each got 5%. I thought it was fair for my parents to decide what they would do with their own money. Well, they loved all of us as individuals. It seems fair to leave some to each of us. I have eight children and my brother has two. Technically, his side got 35% and my side got 65%.” I wonder if this person would have felt the same way if the tables had been turned.
You’re human. You are processing this information and you are entitled to have a range of emotions. It doesn’t make you petty or mean to feel the loss of a share of your expected inheritance. Expectations, as we all have experienced in life, can lead to disappointment. You need to acclimatize to this new plan, and allow your ego — we all have ego — to recover from what feels like a blow. As you say, your niece is a hard worker and, more important, seems to be a good person. So much so that you and your wife are leaving your own estate to her, too.
The Moneyist regrets he cannot reply to questions individually.
More columns from Quentin Fottrell:
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