Our clients, as parents, want to treat their children fairly and equally. Splitting assets equally among children may be easy, but is it fair or equitable? Equal and fair can be vastly different depending on the estate plan and this is where it can become difficult because in many cases equal shares can be extremely unfair to one or more of the children.
The following examples illustrate this:
What if one of your children is disabled, while the others are not? Typically, the disabled child faces a life of dependency on financial support apart from what, if anything, he or she can personally generate. In that case, you may feel distributing your estate on an equitable basis means allocating a greater share of the estate to the disabled child, perhaps through a special needs trust.
In another example, what if you loaned money to one of your children for a house purchase and that loan remains unpaid when you pass away. Should that child receive an equal share of the assets that you own upon your death he or she received more than the others during your lifetime?
One of the biggest issues our clients face, especially in the farming and ranching context, is how to distribute among children when one of the children has been working alongside the parents in the family business, and perhaps has also been less than fully paid for his or her time and efforts. If the main asset of the estate is farm land which is needed to generate a modest living, and the other assets comprising the estate are insufficient to equalize the inheritance between all children, should the child working the farm inherit it in total or share it with siblings and perhaps be required to buy out the siblings who are not on the farm? Could the farm generate enough income to even allow for that to happen? These are difficult questions in which there is no one right answer that applies to all situations. Often, life insurance can play an important role as part of a comprehensive plan that is created in a way that takes these issues into consideration and is geared toward eliminating conflict between the children while treating all as equitably as possible.
There are countless reasons why unequal distributions would be considered equitable and fair under the circumstances. When deciding what to leave your loved ones, it is very important that you determine your own definition of “fair” and “equitable,” especially if equal shares are not a practical or appropriate solution.
Of course, once that decision is made and the estate plan is put in place, you, as the parent, would be well served to tell your children how you decided to divide up the assets and your reasons for doing so. A family meeting can diffuse potential battles that could be ignited by a child finding out, only after the parent is no longer in a position to explain why, that he or she is receiving a lesser share.