As a parent, you strive to love your children equally. While equal treatment might seem fair and justifiable on the surface, fair doesn’t always mean equal. Tailoring your estate plan to your children’s individual circumstances may be a responsible way to provide for them in the ways they actually need.
Here are 4 ways to approach this thoughtfully and ethically:
1. Identify the Reason(s) Behind the Difference
Before deciding on a structure, it is important to be clear on your motivations. Common reasons for unequal distribution may include:
Financial Disparity: One child is a high-earner, while another is overburdened with financial commitments, a disability, or a lower-paying career.
Maturity & Management Skills: One child is financially savvy, while another might be impulsive, struggles with substance abuse and addiction, or is simply not good with money.
Life Choices: You may want to “reward” certain life choices such as the pursuit of higher education or, conversely, you may need to protect a child from the consequences of poor choices including a history of bankruptcy and financial mismanagement.
Non-Financial Contributions: A child who has been your primary caregiver in old age may be receiving a larger share as a form of acknowledgment and compensation for their time and care.
2. Structure the Assets Without Disinheriting
Simply leaving more or less to one child in a Will may create the perception of unfairness. To avoid this, consider structuring the inheritance rather than just changing the numbers.
For the Spendthrift or Vulnerable Child: Use a Trust. This is the most powerful tool for unequal distribution.
As an example, you may leave equal amounts to all children, but the financially struggling child’s share is held in a lifetime trust. They may access the income or principal for their healthcare and or educational needs. However, the core assets are protected from creditors, divorce, or their own poor judgments. This way, the financially savvy child gets their share outright.
For the High-Earner: Leave Non-Cash Assets. You might leave the bulk of the cash to the child who needs it most, while leaving heirlooms, real estate, or a family business to the child who has the means and desire to maintain them.
3. The Family Business or Commercial Assets Problem
If you own a business or other commercial assets, dividing it equally can be a disaster. One child may want to run the business while the others may just want cash.
To resolve this, leave the business to the child who runs it, and offset that with life insurance policies or other liquid assets of equivalent value for the other children. This requires open communication, so the others understand they aren’t being “cut out,” but rather that the asset is being managed practically.
4. The Critical Role of Communication
The biggest risk of unequal distribution is the destruction of family relationships after you’re gone. In order to minimize this:
Engage in Your Lifetime: Where convenient and appropriate, explaining your reasoning can prevent resentment. You can let your children know that you’ve structured things to help each of them in the way you believe will be most beneficial based on their respective life circumstances.
Explain Your Actions: Alongside your legal documents, write a personal letter explaining your decisions. It’s not legally binding, but it serves as a final message to your children explaining that your choices came from a place of love and thoughtfulness, not favoritism.
Conclusion
Do not simply write a Will that bequeaths percentages of your assets to each child or beneficiary. Instead, work with an estate planning lawyer to create a system of wills, trusts and gifts that allows you to control the terms of the distribution, according to your exact wishes. This way, you are likely to be fair to the responsible child and protective of the vulnerable one, all within the same plan.
At August Law, our estate planning team appreciates the importance of protecting family wealth and is dedicated to guiding families every step of the way. We are here to help you create a customized succession plan as well as put in place systems that ensure the preservation of family wealth for generations.
