Equal vs. Fair: Which Choice is Best for Your Children?

iStock_000009163885XSmallPerhaps no parental decision is more gut wrenching than a decision to treat some of your children differently than others when it comes to their inheritance.  Most clients are very reluctant to differentiate among their children.  And yet as unfair as it may appear sometimes the best thing to do is to treat your children differently, whether that takes the form of a difference in the amount of their inheritance or the terms of their inheritance, or both.  Equal does not always translate into appropriate. A client meeting this week brought this issue to the forefront in several ways.

John and Mary have done well in life and have accumulated a significant estate.  They have 3 adult children. Betty is a doctor in a long-standing marriage with children in high school.  Bob is a very successful investment banker in New York and also has several children in high school but Mary is concerned about the state of his marriage.  Bruce is divorced and has battled alcohol issues for most of his adult life, which has affected his ability to hold a job, limited his earnings, and strained his relationship with his parents.

John and Mary’s trusts currently provide that when John and Mary are both deceased the trusts will terminate and the trust assets will be distributed outright to their children in equal shares.  Our discussion this week focused on whether this straight-forward approach continued to make sense.

Should John and Mary leave a larger inheritance to Bruce since his alcohol issues will likely result in him requiring more financial resources than his siblings?  Is this fair to Bob and Betty? On the one hand, Bob and Betty are well off financially and do not need a large inheritance from their parents to help provide for their families.  On the other hand, they have remained close to their parents in ways that Bruce has not, yet they would receive less than Bruce under this approach. John admitted that at times he thought the opposite approach—leaving less to Bruce and more to Betty and Bob—would be fairer.

John and Mary concluded that leaving equal amounts to their children continued to make the most sense at this time. However, Mary was very concerned about Bruce receiving his inheritance outright.  I recommended that they consider having Bruce’s share of their trusts managed in trust for his benefit for his lifetime rather than distributed outright to him. Bob and Betty’s inheritances would continue to be distributed outright. John felt that this singled out Bruce in an unfair manner. “I would rather treat each of my kids the same way, and if they waste their inheritance they will have no one to blame but themselves.”

Mary remained adamant that providing Bruce with an outright inheritance would be irresponsible. “You can do what you want with your trust, but my trust is going to deal with the realities of the lives our children currently lead.  We worked too hard and sacrificed too much to see our savings wasted by one of our kids. And I feel the same way about Bob’s inheritance, too.  I don’t want to see it pass outside the family in a divorce.  Maybe we should have his inheritance managed in trust as well!”

In an upcoming blog post I’ll share how John and Mary resolved their different points of view.
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About Andy O'Donnell

Andy is a partner of the firm, practicing in the areas of tax law and estate and business planning. He is the former chair of the Trusts and Estates Group, and he currently serves as a member of the Management Committee.
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