“Kids equate money and love, no matter what you say.” –Martin Shenkman, planner based in New Jersey
One of the thorniest issues that can come up in an estate is whether or not the kids (or any other beneficiaries, but especially the kids) should be provided for equally in your estate plan. And for many people, “even” pretty much equals “fair.”
But is that always the case? Sometimes children get different amounts of support during the parents’ lifetimes and some children are likely to have more need in the future (consider the child who may have a permanent medical disability, for instance). Additionally, in situations where one child has contributed to the family business, and other children have done something else, sometimes the ownership interest in that business will be given to the participating child, which can cause a lopsided distribution.
Ultimately, what’s fair comes down to the judgment of the person creating the estate plan. The problem is that if you’re planning your estate, you are likely in a better position to determine what’s fair. Unfortunately, your children may not have all of that information, so something that seems fair to you might not seem fair to them. All of this isn’t to say that you can’t divide your estate unevenly, just that you should be very careful about doing so.
If you choose to distribute unevenly, consider doing a few things to make the distribution easier:
- Try to avoid letting things get too uneven. It probably won’t surprise you to learn that the more uneven the distribution, the more likely it is that someone will be upset. That’s not to say that a small difference can’t cause trouble–it can–but the greater the difference, the greater the chance for a fight.
- Don’t let it be a surprise! In this example, the parents have 4 children, 2 boys and 2 girls. The boys have been working in the father’s trucking business–worth about 3 million dollars–and the estate plan involves leaving each son half of the business, which each daughter gets $50,000 cash. In that article, here’s the great quote from the father: “I know if I tell the girls they’ll be upset, and I don’t want the boys to think they’ll be rich some day—it might take away their motivation. They’ll all find out in due time.” Allow me to translate: “This is going to cause a big mess, but I’m going to be dead, and I’m not going to have to worry about it.” If you think your estate plan is going to cause upset in your family, you should be communicating more, not less.
- Get the okay of the child getting less. Unfortunately, people will go to war over relatively trivial amounts of property, even if the relationships between family members seem good. It’s important for the child getting less to understand the reasoning. This may get uncomfortable–you may have to explain financial details you’d have preferred not to or to discuss a sensitive medical situation, but that may be a price that you need to pay in order to make this work.
- Consider keeping the children’s financial interests separate. Would you like to own a business or some other property along with your siblings? Co-ownership of a business, especially one not all of the children have worked in, can be a recipe for trouble, both for the relationships and the business.
- Consider a “no-contest” clause. A “no-contest” clause–or an in terrorem clause, as it is sometimes called–discourages a will contest by providing that anyone who challenges the will forfeits his or her bequest in the will. Of course, for something like this to work, you actually have to give the possible challenger something under the will; if you don’t, then there’s nothing to forfeit.
In the end, no matter what the financial arrangements, you probably want to encourage good relations between your family members after you’re gone. Dividing an estate unequally must be done carefully in order to help preserve those relationships.
Photo credit: Flickr user DigiDi (her photo description includes the recipe!), licensed under CC 2.0