At some point we all have heard a child exclaim “that’s not fair!” When asked why something is unfair, the explanation usually has something to do with the outcome being unequal. Children learn from a very early age that the terms equality and fairness are interchangeable. As adults, we assign these terms haphazardly to areas of life that involve other people, e.g. equal rights, equal access, fair trial, fair housing. While equality and fairness can coexist, they are not synonyms. Equality is a quantitative result, taking into account objective factors, while fairness is a qualitative result, based on subjective factors. When we examine equality and fairness in the world of estate planning, we usually are comparing transfers or distributions from one generation to the next. Here we will examine two common situations where a client must decide between equality and fairness.
Challenges to a Traditional Family
In this context, the term “traditional family” will refer to a first marriage, with no previous children prior to the union. In this scenario presume there are two children of the marriage, a son and daughter, both adults. The son is unmarried, working at a retail job, raising two children. The daughter is married, but has no children or step-children, and both she and her husband are surgeons. An equal distribution of assets would be fifty-percent to the son and fifty-percent to the daughter. However, in this situation who would the parents more likely feel the need to support? Which of the children has a greater need for resources? One argument is that the son needs more support, based on his income and family structure, so he should have a larger portion. The opposing argument is that the daughter should not be punished with a lesser inheritance because of her success and differing lifestyle choices. This example emphasizes the need to examine distributions on the second generational level.
To go further, we examine the impact of distributions on the third generational level. Imagine the same situation above but varied slightly: the daughter has one child of her own. In this case, should the parents designate their estates half to the son and half to the daughter, or should the son receive two-thirds and the daughter receive the remaining one-third (due to the son raising two grandchildren and the daughter raising one)? In practice, grandparents tend to view their grandchildren as an equal collective, not “his and hers.” Grandparents then view their estates as going equally among the grandchildren. With three grandchildren, they often feel that each grandchild should receive one-third of the estate, regardless of which share a parent receives. As the previous scenario risked punishing a child based on success, this scenario risks punishing a child for having fewer children
Click here to get our free knowledge series for Financial Advisors
Challenges to a Blended Family
The same challenges that we see in the traditional family are present in the blended family, but are compounded with new layers of inquiry. The term “blended family” here refers to the marriage of two people, at least one of whom already is a parent. Imagine a blended family having one spouse with two children from a previous marriage and the other spouse having three children from a previous marriage. Which of these two distributions is equal: each child receives one-fifth of the estate, or two children share one-half and three children the other one-half? Usually this question comes down to the relationship among the family members. The longer the second marriage, and the younger the children were at the start of the second marriage, the more likely the parents will take the first view. Clients with recent marriages, or clients who remarried later in life after the children are grown, tend to lean towards the second view. Mix in with this the added challenges of step-grandchildren, and the drafting gymnastics can become quite complex. Only the most inclusive of clients are willing to treat a step-grandchild the same as his or her own blood grandchild.
Regardless of whether a client is in a traditional family or a blended family, the goal is to distribute assets in a manner that the client fully understands and appreciates. The documents should reflect the client’s intent. Without walking through these situations with your client, he or she might not know how to articulate that intent. The first inquiry into a client’s estate plan should not be the size of the estate, but the relationships that are most important to the client. After all, there must be someone in the client’s world important enough to spend time with an attorney voluntarily.
This content is provided for our clients, advisors, friends and other interested readers for informational purposes only. The contents of this article do not constitute legal advice and do not necessarily reflect the opinions of the firm or any of its attorneys or clients. This article provides general information, which may or may not be correct, complete or current at the time of reading. The content is not intended to be used as a substitute for specific legal advice or opinions. No recipients of content from this article should act or refrain from acting on the basis of content of the article without seeking appropriate legal advice or other professional counseling. The author expressly disclaims all liability relating to actions taken or not taken based on any or all contents of the article.