I was working on an interesting estate planning case today and I thought I would get people’s opinion on the subject. At the end of the day this client wants to leave his assets in an unequal distribution schedule to his three children wherein one of the children will receive the lion’s share of the 8 digit estate.
I should mention right of the bat though, that while your opinion means something to me it won’t change the case as the number one priority in estate planning, at least in my humble opinion, is bringing to life the client’s testamentary intent.
Should You Distribute Your Estate Equally to Your Children?
It feels natural to just split everything between your kids, right? It is like using a simple will where you live everything to your surviving spouse and then if he or she doesn’t survive then to your children…it is comforting for some reason. But what if that isn’t equitable? Equitable being defined as
impartial or reasonable; fair; just
Two examples having to do with unequal distribution schedules that are probably more common then one would like to believe:
- What if you have 2 children and one is the prodigal son? Does that lost son really deserve half the estate? What if he was gone for 10 years? 20 years? 35 years?
- The whole concept of stepchildren and inheriting from a surviving non-parent without a Qualified Terminable Interest Property Trust.
What if the bequest has to do with a Family Business?
In the case I was working on today, it was three children and only one of the children worked in the family businesses for the past decade or two. As such, it is/was the parents’ intent to leave him the business to the detriment of his siblings. So Child 1 will receive the established businesses, and only after those specific bequests are made will the remainder be split into thirds.
Mom and Dad basically said he has stuck around and built those assets into what they are today and thus he deserves to get those assets even if it means that his siblings will get less.
Could you make that same decision?
What if other children sue because they believe child 1 coerced mom and dad? What if mom and dad’s legacy is now tarnished because child 2 and 3 (and the subsequent grandchildren) feel slighted?
An Easy Way To Fix Unequal Distribution to Heirs
There is an easy way to fix the unequal distribution issue, if you want to, however, you may not want to. To do so we would need a product or asset that could be obtained relatively cheaply and provide a lump sum which can be made certain or grow over time and be paid upon the passing of a specific person? Oh yeah…there is it is called Life Insurance.
I have done this type of strategy numerous times in the past, but I don’t think it will work here as parents don’t care about the unequal distribution, but:
- Specific bequest of business to Child 1
- Survivor Life Insurance purchased on mom and dad for pennies on the dollar
- Survivor policy is split between other children
Worst case scenario mom and dad die Child 1 gets his business other children get cash in an amount equivalent to the estimated value of the business. Best case scenario everyone lives forever.
Regardless of the “fix” would you consider distributing your assets unequally to your children? Have you ever received an unequal inheritance?