Mom Always Liked You Best

Considerations for Unequal Bequests

“Mom always liked you best” is a phrase I heard popularized by the Smothers Brothers in their comedy routines in the 1960’s. Potentially implying unequal levels of love for their children with unequal inheritances may be a fear of many parents when they create their estate plans.

One of the expressed goals we hear often from clients is that they want to make sure their children are treated fairly. Does “fair” always mean “equal”? What about the children and stepchildren in blended families situations…what’s “fair” in those cases? An inheritance is generally the deceased’s “last word.” If children inherit unequally, does it really signify unequal love?

The Great Transfer of Wealth is underway as trillions of dollars shift from the Silent Generation (those born between 1925-1945) and the Baby-Boomer Generation (those born between 1946-1964) to the younger generations. There may be times when unequal inheritances are appropriate and there may be times when inequality is unavoidable. 

The truth is that passing wealth on to heirs is often not a one-time testamentary decision.  There may be several instances during our lives where transfers of property occur such as: outright gifts, financial assistance, discounted sale of assets such as a house or business.  Often these lifetime transfers are not made equally to all the children…but are they inequitable or unfair?

FAIRNESS, EQUITY AND EQUALITY

Let’s examine the meanings of fairness, equity and equality in connection with the transfer of wealth¹.  Each one of these concepts may give rise to different results. Although mostly a discussion of public finance equality, equity and fairness issues, a 2021 offering from the Government Finance Officers Association (GPOA) proposed some interesting thoughts about these concepts².

• Fair distributions may refer to distributions that are just or appropriate under the circumstances. Equality and equity may be some ways to achieve fairness.
• Equal distributions generally mean the distribution of the exact same resources to each recipient. It may simply refer to distribution of the exact same dollar value regardless of differences in the individual recipient’s needs or differences.
• Equitable distributions may refer to distributions based on the needs of the recipient.

The consideration of concepts like fairness, equity and equality demonstrate that passing on wealth may not simply be an economic or legal issue. Emotions and relationships are involved…and they may play more than just a minor role. We’ve all heard of sibling conflicts about very small dollar values or whether a particular possession is junk or treasure and who it belongs to. Conflicts may sometimes result in resentment towards the deceased.

RESULT vs. METHOD

Whenever a course of action is embarked upon, there is a reason for doing it. A desired result or outcome is the goal. Often, in determining the endpoint (the goal), the concepts of fairness, equity and equality are involved. However, the road or the means to the desired result can also be considered in the context of fairness, equity and equality. The process involved and the end result can both be a source of discussion and conflict.

Examples of how fairness, equity and equality considerations may arise regarding both results and methods might include the following:

• I want to leave all of my assets to my two children upon my death in equal shares. However, one child has more children of their own than the other child. I may be treating my children fairly and equally, but am I potentially being unfair to my grandchildren because their parents had a different number of children? 
  • What if one of my children is very well off financially while the other one is struggling, would it be fair to leave wealth unequally?
  • What if I gave significant financial assistance to one child during life and not the other…would it then be fair to leave wealth unequally? It is interesting to note that only about 24% of young adults were financially independent by age 22 in 2018, compared with 32% 38 years earlier in 1980³.
• I want to leave all of my assets to my two children upon my death in equal shares. However, one of my children has been susceptible to poor financial decision-making in the past. If I leave that child’s “equal” share of wealth in trust (a different method) while leaving the other child’s share outright and free of trust, is that fair? Is that equal?
• I want to leave all my assets to my children in equal shares. I own a valuable business and one, but not all of my children, has been working in the business and has been designated as the successor.
  • If I leave the business, on death, to the child designated as successor, is that unfair to the rest of my children?
  • If I leave the business, on death, to all of my children in equal shares, is that fair to the child with the sweat equity designated as successor trying to run the business?
  • If I sell the business to the child designated as successor during my lifetime, is there a “lost opportunity” for my other children rendering that an unequal or unfair transfer?

SOME SOLUTION STRATEGIES

As discussed above, who gets what and how they get it involves financial and non-financial issues. Consideration of fairness, equity, equality, as well as result and method enter into the estate planning for many; often irrespective of the degree of wealth involved. Rightly or wrongly, the estate distribution plan may be viewed to signify power, love and control. They may provide insight into family relationships.

So…how can we navigate these treacherous relationship waters? Here are just a few ideas:

• Often, family meetings dealing with estate and legacy planning can be helpful so that no one is surprised by the result or the method. Actual dollar amounts need not be discussed, but certainly the process may be, especially where various family members may be playing a roll. The Family Wealth Decisions Group has facilitated these family meetings and when they include the tax, financial and legal advisors, they have been of great value.
• Trusts have the reputation among many that they are inflexible lock boxes. This is not necessarily true. Experienced trust and estate counsel can engage significant creativity in trust drafting to accomplish nearly any goal. Trusts can offer an effective means to manage the distribution of assets after death.
• Sometimes “equalization” of asset transfers can be accomplished by considering pre-death transfers as an advancement – an advance on the recipient’s inheritance. The amount of this pre-death transfer can then be used as an offset to “equalize” the transfers to the remaining heirs⁴.

Perhaps the best idea might be work with an experienced financial advisor to help sort out the relevant alternatives that may be available. The Family Wealth Decisions Group routinely works with their clients to accurately articulate wealth transfer goals and works with their tax and legal advisors to design mechanisms to achieve those goals. 

Please contact us if you would like to talk with someone about your estate and legacy plan.  Remember, we are here to help.

1. Presentation by Kim Kamin and Avi Kestenbaum of Gresham Partners, Unequal Inheritances: A Final Parental Communication, January 14, 2021.
2. https://www.gfoa.org/materials/whats-fair-3
3. https://www.thestreet.com/retirement-daily/planning-living-retirement/stop-adult-child-financial-reliance#:~:t0time%20to,be%20hard%20to%20set%20otherwise.
4. https://www.law.cornell.edu/wex/advancement#:~:text=An%20advancement%20is%20a%20gift,estate%20when%20the%20donor%20dies.

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