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It’s not very often that I see an estate plan that treats children unequally. When I do, it is usually because a parent is estranged from one child and leaves him or her nothing. In estate planning, “equal” isn’t necessarily the same as “fair.”
Recently, a client I’ll call Camila, widowed with four adult children, posed a question. Three of her kids had done very well, earning six-figure salaries and building substantial net worth. The fourth child, Fredrick (not his real name), had not fared as well, in part because of mental health issues. He had limited education, had been in and out of jail, had no net worth, and found it difficult to hold a job.
Camila understood that Fredrick needed an inheritance, while his financially successful siblings did not. She wanted her estate to provide some basic support for Fredrick, but was concerned that any money left to him outright would be gone quickly. She wondered about leaving his share in trust in order to provide him a monthly income. She also wanted to be fair to all four children.
What could she do?
She was right in considering a trust. The problem was that Fredrick’s share of the estate was small enough that trustee fees would eat up the trust quickly. If she left her entire estate in trust for Fredrick, the trustee fees would be a little more palatable. But that left the question of fairness.
The worst thing Camila could do is to leave Fredrick everything without telling his siblings. In a February 19, 2021, New York Times article, “The Unequal Inheritance: It Can Work or It Can ‘Destroy Relationships’,” Susan Garland writes, “unequal inheritances can trigger sibling fighting after a parent dies. Some feuds end up in court, especially if an adult child suspects a parent was the target of what lawyers consider to be ’undue influence’ by the brother or sister who benefited most.”
This sibling fallout can happen even if they knew about and agreed to an unequal distribution while the parent was living. This is where difficult emotions can become easily triggered. Logically the other three kids would probably agree their brother needed the funds more than they did; they might all nod their heads and say, “That makes sense.” Yet it wouldn’t be unusual for them to feel resistance to him receiving their share of the estate—and not to say so. Often, they may not even admit to feeling resistance because of shame they may carry around it. After all, their brother really does need the money worse than they do.
Even if they can admit to feeling resistance, they may be unable to articulate why. The reasons why can be as numerous as the stars and would take a book to cover. The important thing to acknowledge is that the emotions behind the reasons are not trivial, but are important, and should not be dismissed or minimized.
After considering a number of potential solutions, Camila decided to leave her estate equally to all four children, allowing each sibling to decide individually if they wanted to give some or all of their inheritance to Fredrick. She did this by adding language in the will that if any child wanted to refuse, or disclaim, any or all of their inheritance, it would pass to a trust set up for Frederick. This put the decision and power with each child.
This could still cause tensions between the siblings, especially those who disclaimed and those who didn’t. Still, this arrangement solved more problems than it created. It was Camila’s best effort to be fair to all her children.
Rick Kahler, MS, CFP®, CFT-I™, CeFT®, CCIM, is founder of Kahler Financial Group, a Rapid City, SD-based fee-only Registered Investment Advisor.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.