When Equal Isn’t Fair: Estate Planning for Children

Jonathan J. Robertson Wealth Planning

Financial advisors frequently help clients think through their estate plan prior (and in addition) to meeting with an attorney.  When parents begin working on their estate plan, the usual statement is:  “treat my children equally.”  Then the question arises:  “is treating equally actually fair?”  People often incorrectly mix fairness with equality.

Many different scenarios come into play when parents want to treat children differently as part of the estate plan. Sometimes treating children differently reaches an outcome that can be fairer than treating children equally. Differences come in many different forms:  (1) differing levels of assets going to children; (2) one child receives a specific asset; or (3) one child receives assets “outright,” while the other child receives assets in trust.

Why would parents want to leave more assets to one child than another?  A few examples are:

  • One child has significant medical challenges.
  • One child provides for a larger family.
  • One child earns more money than the other(s).
  • One child has received more financial support throughout his/her life, and the parents want to even things up after their deaths.
  • One child provides more support to the parent as the parent ages, and the parent thinks it is fair to leave more money to this child as partial compensation.

Sometimes parents want to leave a specific asset to one child.  While parents may still provide the same level of assets to each child, the children still might not think of things as being equal. For example:

  • If you own a family business, it may make sense to leave that business to the child who works in the business rather than to multiple children who may or may not be involved.
  • Sometimes one child has a greater connection to the family vacation home (or the family home) than the others.

Another common scenario where “not being equal” arises is the manner in which your children inherit their assets.  It may make sense to use a trust structure for one child, but not for the other(s). This situation frequently arises wherein there is a significant gap in age (or skills) among the children, mental health or substance abuse challenges, or concerns about divorce and/or asset protection.

Inequality coupled with a lack of communication can cause pain.  When children lose a parent, they usually aren’t at their best emotionally, and tempers can run high.  It’s easy to assume the worst rather than the best.  Children can feel resentment towards each other and towards the financial advisor and the attorney.  It’s easy for a child to equate the amount of money parents are leaving to them with the amount of love that you feel for them.   Work beforehand to create a plan.  Fortunately, good communication can address many of these challenges and lead to successful outcomes—from a letter to meetings with children to honest conversations.

You can write a letter that goes with your estate plan. While a letter isn’t a legally binding document, it can explain your thought process as to why you chose to create your estate plan.  Children might disagree with your reasoning, but they will at least know you made your decision with both love and with thought.

Additionally, a family meeting may be helpful.  Sometimes clients choose to have these meetings as a group or one on one with each child (or as a combination of both).  A meeting allows you to answer questions and address concerns your heirs may have.

Perhaps the best plan is to have a conversation and also write the letter. People remember conversations differently, and memories change over time.  Having something in writing can go a long way to ensure that your children understand your choices when you are no longer around to tell them yourself. Talk with your legal (or financial advisor) to have help facilitating the meetings and/ or provide examples of letters to children.

While estate planning is not always an easy task, taking the initiative to ensure that your children understand your wishes and how you plan to distribute your assets will make it easier for your heirs when you are no longer alive. 

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