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April 11, 2023— Parents with multiple children often grapple with issues around fairness and equality when structuring their estate plans. With intentional thought and communication, and sometimes a third-party facilitator, parents can strive to achieve their wishes where intentions are understood and negative impacts for a family are reduced as inheritances are discussed and executed. In this podcast, Family Legacy Advisor Jerry Inglet of Wilmington Trust Emerald Family Office & Advisory® discusses what considerations can be used by parents to contemplate these inheritance choices.

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Should Parents Consider Differentiated Inheritances for Children? A Discussion of Fair Versus Equal.

Hi, thank you for tuning into today’s Emerald GEM, which stands for Get Educated in Minutes. I’m Jerry Inglet, a family legacy advisor for Wilmington Trust’s Emerald Family Office and Advisory and your host for today’s podcast. Today, I will answer a series of questions, including:

What is the difference between fair and equal regarding the inheritance you are passing to your children?

What considerations can be used by parents to contemplate these choices?

Envision a scenario where three children, all siblings, enter an emergency room together. The first child has a scraped knee, the second is experiencing stomach cramps, and the third has a fractured arm. Without explanation, the attending physician places a bandage on the knee of the first child, one on the stomach of the second, and one on the arm of the third. Although this certainly was equal, was it fair? And should the doctor have explained the decision for the treatment?

Parents with multiple children often grapple with issues around fairness and equality when structuring their estate plans. Sometimes an equal distribution is not always fair. While an equal division is more easily computed—for example, each child receives one-third everything—a fair distribution may be slightly more complex and unique and layered with context. Within a lens of fairness and equality, emotions can run high and pull apart the most amicable of families. Instances where a matriarch or patriarch would consider fair over equal may include circumstances where:

  • One or more child or grandchild has special needs
  • A particular child is a primary caregiver for the parents (often labeled as caregiver equity)
  • One or more child has received differentiated financial support during the lifetime of the parents (often in the form of substantial disbursements for 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

Other reasons for differentiated inheritances can be rooted in family discord:

  • Perhaps a child or parent has disconnected from the family and has fallen out of favor
  • There is a 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 a lesser financially positioned child. 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 and behavioral finance that parents could consider (in concert with their tax and financial advisors) that may help ease the pain and define the division of resources:

  • If equality rather than fairness is the end goal, consider the resources being handed down. Are they equal in value? Will certain resources be 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 fairness is the pursuit, have you communicated your reasoning behind these decisions to your family, and can you anticipate any resistance or unrest that may result from the plan? What is your plan if there is unrest? Maybe a third-party facilitator is needed to lead some of these family sessions and discussions.
  • Regardless of fair or equal, have you considered how one of a number of wealth planning strategies, such as a trust, might further your overall goals and objectives and potentially mitigate family discord?

With all of these concepts under consideration, are you worried about where to begin with this process as a parent?

Fair and equal can be particularly pronounced when it comes to family heirlooms. These items can have significant economic value, but frequently they have outsized emotional or sentimental importance to one or more family members. Therefore, this can be a good entry point for a fair and equal discussion. Whether your estate plan is prepared, under contemplation, or close to completion, you might consider constructing a family heirloom policy where you:

  1. Ask each child to independently craft a list of five to seven family heirlooms (not including liquid assets or real estate—items such as art, furniture, and jewelry) that they hope to receive upon your passing
  2. With each list independently submitted and aggregated in a random fashion, gather the family virtually or in person and reveal the list of heirlooms mentioned on a flip chart or virtual display
  3. As parents, create and deliver a trivia question for each heirloom—as an example, ask your children to independently record how a particular heirloom was acquired, its age, its value, or another question that will reveal the child’s knowledge of the heirloom
  4. After all the questions are completed, total the correct answers for each child
  5. Let the child with the highest number of correct answers choose the first heirloom, the child with the second-highest score has second choice and so on. Once the final child chooses in the first round, let that child choose first in the second round and inverse the order—continue until five or six rounds of heirlooms have been earmarked (you will want to 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 fairness should prevail over equality with our family resources?

Depending on the conversation’s outcome, the children’s expressed maturity, and temperament of the moment, a parent could use this platform to gauge resistance and conflict within the family on measures of equal versus fair. This exercise could be the catalyst for parents to provide details centered on their reasoning behind the structure and distribution of their estate plan.

Equal versus fair may not be easy for parents, but with intentional thought and communication, and sometimes a third-party facilitator, parental wishes can be achieved where intentions are understood and negative impacts for a family are reduced as inheritances are discussed and executed.

Thanks again for joining us today. Please contact your Wilmington Trust advisor if you have any questions about fair versus equitable treatment of inheritance for your family; we would be glad to help you. See you next time!

Wilmington Trust Emerald Family Office & Advisory® is a registered trademark and refers to wealth planning, family office and advisory services provided by Wilmington Trust, N.A., a member of the M&T family. Wilmington Family Office is a service mark for an offering of family office and advisory services provided by Wilmington Trust, N.A.

The information provided herein is for informational purposes only and is not intended as a recommendation or determination that any tax, estate planning, or investment strategy is suitable for a specific investor. Note that tax, estate planning, investing, and financial strategies require consideration for suitability of the individual, business, or investor, and there is no assurance that any strategy will be successful.  

Wilmington Trust is not authorized to and does not provide legal or accounting advice. Wilmington Trust does not provide tax advice, except where we have agreed to provide tax preparation services to you. Our advice and recommendations provided to you are illustrative only and subject to the opinions and advice of your own attorney, tax advisor, or other professional advisor.

The information in this podcast has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. The opinions, estimates, and projections constitute the judgment of Wilmington Trust and are subject to change without notice.

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