How do Parents Navigate Differentiated Inheritances for Children: A Discussion of Fair Versus Equal?

Three siblings, entered an emergency room together. One had a scraped knee, one was experiencing stomach cramps, and the last a fractured arm. The physician placed a bandage on the knee, one on the stomach, and the last on the arm. This certainly was equal, but was it fair?

Parents who grapple with leaving an inheritance to multiple people and/or entities often find that differences between a distribution that is equal, is not always fair, and within a lens of fair or equal, emotions can pull apart the most amicable of families. Instances to consider fair over equal may include:

• One of their children or grandchildren have special needs
• A particular child is the primary caregiver for the parents
• One child has received differentiated financial support during the lifetime of the parents (education or some other event that resulted in a financial disparity between siblings)
• Certain children have larger families
• Some children work in the family business, some do not
• There is a cultural/religious component to the division of resources

Differentiated inheritances can be rooted in family discord:

• A child or parent has disconnected from the family and fallen out of favor
• Current or previous history of drug dependency or criminal propensity from a potential inheritor
• A child’s spouse or in-laws are unpopular with the matriarch/patriarch

Some unbalanced bequests account for the varied financial success of children when parents favor the lesser financially positioned children. With these possibilities in play, a well thought estate plan, accompanied by an equally intended communication plan to the benefactors, can help keep a family connected while fulfilling the parent’s wishes on the passing of their resources.

Here are some questions, rooted in strategy, product, and behavioral finance, that parents/donors could consider (in concert with their tax and financial advisors) that may help ease the pain and define the division of resources:

• If equal is the plan (over fair), are the resources handed down equal in value—will certain resources get taxed differently, fluctuate in value, have varied distribution timetables, or present dissimilar liquidity—how will you account for these variances in your will/estate plan?
• If fair is the pursuit, have you crafted discussion points for the family that detail reasoning behind these decisions, and can you anticipate any resistance or unrest that will result from the plan?
• Regardless of fair or equal, should these resources be placed in trust (weighing fees versus benefits)?

As the parents complete their estate plans and prepare to relay particulars to their family, below is a strategy that eases into this space with the construction of a family heirloom policy:

1. Ask each child to craft a list of five to seven heirlooms (not including liquid assets or real estate—items such as art, furniture, jewelry) they hope to receive upon your passing
2. With each list independently submitted, gather the family and reveal the list of heirlooms
3. Deliver a trivia question for each heirloom—for example, ask the children how the heirloom was acquired, its age, the value, or other question that will reveal the child’s knowledge of the heirloom
4. After the questions are completed, total the correct answers for each child
5. For the child with the highest number of correct answers, let him or her choose the first heirloom, the second most achieves the second choice and so on. Once the final child chooses in the first round, let him or her choose first in the second round and inverse the order—continue until five or seven rounds of heirlooms are earmarked (consult with your tax and legal advisors for estate and tax implications)

Once completed, ask your children:

• Was this exercise equal or fair?
• What is the difference between equal and fair?
• Are there circumstances where fair over equal should prevail with family resources?

Depending on the outcome of the conversation, the expressed maturity of the children, and temperament of the moment, a parent could use this platform to gauge resistance and conflict within the family. This exercise could provide details centered on their reasoning behind the structure of their estate plan.

Equal versus fair, not easy to navigate, but with intentional thought and communication, parental wishes can be achieved where intentions are understood, reducing negative impacts.

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