How to Divide your Estate…Unevenly

 

June 5, 2017

 

The Situation

 

Dividing your estate among your children is easy, right? Just give each child an equal part.


While that approach sounds great in theory, in practice the issue may be more complicated.


What You Should Know


Randall Lamb is a law partner with Dinkins Kelly Lenox Lamb & Walker, L.L.P., which specializes in issues of transfer, management and control of family assets. He spoke to us about situations when an unequal inheritance may be hard to avoid.


One involves a family business. Like the baby that Solomon offered to cut in two to settle a custody case, a business entity may not divide easily. And a further complication: What if one child works in the business, while others do not?


You could always leave the business to the child who works there, and equalize by giving other assets to the other children. But Lamb said there will still be problems.


“One is having enough assets to do the equalization. And the trickiest question is how to value the family business. It’s like the goose that lays the golden eggs. How long will the goose live? How many eggs will she lay…It’s a delicate balancing act.”


Other issues may require even greater delicacy. What if one child is a highly paid neurosurgeon, the other an elementary school teacher? Should you treat them equally in the plan?


Or, imagine a family that is not especially wealthy and has a child with Down’s syndrome. Should the will favor that child over others, to account for care expenses? Or should they take the opposite approach and, in effect, disinherit the Down’s syndrome child so that he or she can qualify for Medicaid, and trust the other siblings to use their inheritances to help?


There are many cases when an unequal inheritance happens inadvertently. For instance, one child lives near his elderly mother, and for convenience his name is added to the mother’s accounts, in case of incapacity.


“Depending on which box is checked,” Lamb said, “you may be creating a survivorship account with that son that will send the assets remaining in the account solely to the surviving account holder (the son). The mother may have a will that treats all the children exactly the same, but the survivorship trumps, and it’s done inadvertently.”


Lamb calls that “estate planning in a bank lobby,” yet another inheritance land mine.


But the big question is how to prevent such landmines from exploding.

 

What You Should Do

 

“There’s no panacea,” Lamb said. But having been involved in contested estates for 30+ years, he knows the dangers, and ways to deal with them. They involve proceeding thoughtfully and carefully, while keeping communication lines wide open. The latter may take effort, because the subject involves death, which many do not want to discuss.


“There should be a big caution sign anytime you treat children, even for admirable reasons, differently,” Lamb added, “because kids tend to treat the relative size of their inheritances as a measure of parental love and affection.”


For that reason, it’s important to bring children into the decision process, so it doesn’t surprise them later.


“One of my favorite quotes in this business is sometimes attributed to Ben Franklin,” Lamb said. “He said you never know a person until you share an inheritance with them. And that is when your kids are really going to get to know one another.”


Lamb added that the roots of inheritance fights can run deep—back to perceived slights in childhood.


“As long as the parents are alive, that emotional wound stays buried. But death or incapacity creates a vacuum, and children behave differently in the vacuum than when both parents were alive and had capacity.”


As a final word, Lamb stressed the need to not simply go to a lawyer to draft a will, but to engage in a process that takes full account of the complexities involved.


It’s called estate planning.


If you would like to discuss estate planning, contact a reputable estate planning attorney. If you wish to contact Randall, he may be reached at (713) 259-7034 or rlamb@dinkinslaw.com. And, as always, consider PARTNERSINWEALTH your knowledgeable and trustworthy single point of contact for any financial matters. Please contact Jim Waters, CFP®, at 713.964.4028 or jrw@partnersinwealth.com.