Fair Versus Equal Estate Planning

Fair Versus Equal Estate Planning – How Should You Divide Your Assets Among Your Children?

Today we have a really interesting topic that almost everyone has to address at some point when doing their estate planning. We’re talking about the concept of fair versus equal when it comes to dividing your estate among your children or grandchildren. Several years ago I had a family that was struggling to determine how they should split their assets among their heirs, and it was helpful for them to make the distinction of fair versus equal.

Defining Fair Versus Equal

We’ll begin by defining equal, although everyone pretty much knows what equal means. This means that everybody gets the same regardless of need or situation. The pie example is most useful. If your estate is a pie and you have four children, an equal distribution of the estate would have each child getting a quarter of that pie. That’s equal, but it may not always be fair.

Now that the concept of “equal” has been simply defined, let’s talk about fairness. Fairness means that everybody gets what they need or what they deserve. In the case of estate planning, you may feel that your heirs (children or grandchildren) have varying needs. So a fair distribution of assets would be based on each persons need to be successful and healthy.

Fairness is sometimes based upon a desire or an interest, whereas equality is mathematically split down the middle. Thankfully, God didn’t create us all to be the same. Each person has their own sets of gifts and talents. As a result, each one of your heirs is likely going to have their own unique situation.

Those situations may cause you to think differently about the distribution of your estate in a fair versus equal manner. As opposed to splitting everything equally, you may consider the love and respect that your heirs have shown towards you, along with their hard work and perseverance. In other words, what do they deserve based on their behavior towards you and their overall work ethic?

Example #1: The Family Business

Now that we’ve defined the fair versus equal distribution of an estate, let’s talk about some real life examples. Let’s start with the example of a family business. You have a family business, but only one of your children moved back home after college to work in this family business. The other children are successful, but they have their own careers apart from the family business.

The one child that joined the family business has worked very hard to grow the business to levels that it would have never reached without their involvement. Now that the business is established and growing, you’re able to take vacations and enjoy life more. You no longer have to worry about opening or closing the business each day because this one child has taken that responsibility and performed those duties well.

And while your other children are doing well in the big city with their careers, this one child has made a commitment to keep the family business growing and running smoothly. Their hard work and perseverance have made your life easier and helped to continue the legacy that you created when the business was started. So is it fair to equally split your estate among all your children when one child has been working in that business and the others have not?

You can see where the concepts of fair versus equal begin to conflict here. One child has given their sweat equity to the family business whereas the other children have their own careers. One child has made sacrifices that the other children have not made. You can see from this example that equality and fairness do not always coincide. Fair doesn’t mean equal and equal is not always fair.

Example #2: The Family Farm

Let’s use another similar example, but with a family farm where land assets are a significant portion of the estate planning. As with the example above, let’s assume you have one child that has worked on the family farm and other children who have not. The one child on the farm has worked hard to help you grow and expand the operation, allowing you to purchase more land and equipment for the farm. The farm would not be as large as it is today without their contribution.

So when doing your estate planning, is it fair to divide the land assets equally among your children when only one child has worked for the family farm? If you divide the land equally, what happens to the child that has been the farmer in the family? Now he’s a tenant to his brothers and sisters and is having to pay them land rent so he can continue to farm. Is that rent going to be at fair market value or at a discount? You can easily see where conflicts could arise here.

Inflation is rampant and the prices of everything are at an all-time high. This is especially significant in the farming industry where fertilizer and fuel prices have increased drastically in the last couple years and will continue to rise. If you divide the family farm equally, your son who has helped grow the farm will be at a severe disadvantage. Not only will he have to deal with the rising cost of farm inputs, but he will now have to pay to rent farmland that was previously rent-free. Is that fair?

Example #3: A Child with Substance Abuse Issues

We’ve covered the examples of a family business and a family farm with land assets. Now let’s complicate the concept of fair versus equal with the example of a child who has a substance abuse issue. Do you want to divide your estate equally among your children when you know one of them lacks the responsibility to use their inheritance wisely?

Given their substance abuse issues, there’s a good chance that any inheritance given to them would just be used to feed their addiction. An equal distribution of the estate in this case may not be the best thing. Giving them a substantial sum of money may only enable their substance abuse further and cause more damage in their lives.

You’ve already paid a significant amount of money for rehab and other expenses as a result of their addiction. And if you hadn’t paid for all those things, you’d have a larger estate to split among all your children. So is it fair to penalize the other children by being equal to the child with substance abuse issues?

Example #4: A Child with Special Needs

Having a child with a history of substance abuse is extremely difficult. Over the years I’ve helped many families who are struggling with estate planning as a result of this. But if you have a child with special needs, it can get even more difficult than that. If you have a child with Downs Syndrome, Autism, or some other mental or physical disability, is it fair omit that child from your estate planning?

Some parents initially think that it would it would be best to leave the assets of the special needs individual to a sibling. They’ll let the sibling take care of the special needs individual’s inheritance, and ensure their needs are met. While this might sound good on paper, it rarely works as planned. That sibling can be the most caring person in the world, but it is extremely tough to take on that burden for the rest of your life. Do you want to burden your other children with that responsibility?

But if you give the special needs person an equal share of the state, that can be problematic as well. What if the special needs person has already qualified for disability benefits. If they suddenly receive a large sum of money, they would be disqualified from those benefits and have to pay for their medical expenses “out-of-pocket.” As a result, they’d burn through the inherited assets quickly because their care is so much more expensive than the average daily cost of living.

You can see where the concept of fair versus equal can get very confusing when you’re dealing with a special needs child. You want to be fair to them, but being equal may not be the best thing for them. You don’t want to disqualify the benefits they’re already receiving, and you don’t want to put the burden on your other children.

Making the Right Decision for Your Family

As if you didn’t already know, hopefully these examples have helped you understand how difficult estate planning can be. There are some very hard decisions that have to be made. Most parents are uncomfortable talking about these decisions because they love their children and/or grandchildren so much. They don’t love one more than the other, but they understand that varying circumstances may require a fair versus equal distribution of the estate.

There is no right or wrong answer when it comes to being fair versus equal. Every estate and every situation is different. Sometimes equal is best, sometimes fair is best. In my humble opinion, inheritances are not a birthright. They are earned through love, respect, and perseverance. If all your children have shown that love, respect, and perseverance, then an equal distribution of the estate may be best. If not, you may consider a more fair distribution.

We’re here to help you through these difficult decisions when it comes to estate planning. Since 1992 I’ve done thousands of estate plans and drafted thousands of wills, revocable trusts, and irrevocable trusts. I’ve implemented thousands of business succession plans, dealt with children who have substance abuse problems, preserved and protected family businesses, created asset protection plans, secured the assets of the elderly so they’re not taken by the nursing home, and protected the dignity of supplemental needs children and grandchildren. These decisions are tough, but we’ve been doing this for a very long time. Complete this form to get in touch and we’ll be glad to help.

The primary question you need to answer is this. What message do you want to send to your children? For the children who have loved you, respected you, persevered, worked hard, and put time and effort into the family — do you want them to be rewarded for those actions? Or do you want to be equal? Conflict can be inevitable, but it’s all about the message you want to send. We’re not here to tell you how you should divide your estate. We just want to present the questions that should be considered when making these decisions. Do you want to be fair among your children, or do you want to be equal? Equal does not mean fair, and fair does not mean equal.

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