You’re equally proud of your investment banker daughter and her sister, the kindergarten teacher, but it’s clear to you who needs your money more. Or maybe one of your children has hit hard times — say, a prolonged layoff or a costly divorce — while the others have flourished.
Or possibly you’ve already lent a big financial hand to one of your offspring, anything from the down payment on a home to paying off debt, while the others have never asked you for a dime.
Whatever the personal circumstances that have led you to this point, you’re now considering leaving different amounts of money and assets to your children in your will, either to even the scales or to direct help to whoever needs it most. But you’re also worried about the possible emotional repercussions of that decision on your family — the hurt feelings and sibling rifts that could result.
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“The most difficult question in estate planning is how I can be fair to my children,” says Larry Macklin, president of the National Association of Estate Planners & Councils.
It’s a challenge that is likely to grow as aging baby boomers transfer an unprecedented amount of wealth — an estimated $84 trillion or more over the next 20 years — to the children who follow them. Combine money, grief and family dynamics, and the potential for drama over inheritances is high even when parental assets are divided evenly among children, experts say. Add a different split to the mix and tensions can boil over — unless you take steps in advance to mitigate the potential fallout.
The solution is not necessarily to change your plans for distributing your assets but to do what you think is right and fair, then clearly communicate your intentions and reasoning to the people you love. Here’s how experts suggest you go about it.
Have “the talk”
Children, whether they’re young or adults, tend to equate a sibling getting more money or resources from a parent with love and affection, says Laurie Kramer, a professor of applied psychology at Northeastern University who has researched parental differential treatment. In the absence of an explanation, she says, children tend to form their own ideas about why their parents are treating them differently and what it signifies.
“When they feel that one sibling is getting more love and affection from a parent, there’s nothing that they can say to themselves to make it okay,” Kramer says.
Kramer’s research also shows, though, that when people believe their parents are giving more to a sibling in order to meet an important need that their brother or sister has, they can understand it. Kramer says, “They can think it’s fair or warranted, and in that case, there is no negative impact on family relationships.”
The clear takeaway for anyone who plans to bequeath different amounts to their children? Explain yourself ahead of time.
The first step, says Mitchell Kraus, a certified financial planner in Santa Monica, Calif., is to document your wishes in a formal will or estate plan. Then have a conversation with your children about the approach you’ve taken. You don’t have to get specific about the numbers, he says, but give them a general idea of what to expect when it comes to the division of your assets and why you’ve chosen to do things this way.
If your children instead have no inkling about your plans, they may feel blindsided after your death — no matter which side of the inheritance divide they’re on.
Macklin recalls a client with two adult children, a spendthrift son who had trouble keeping a job and no savings, and a married daughter with children who was well off financially. Concerned the son would plow through his inheritance, the father left money to him in a trust so it would last his lifetime, while the daughter received her inheritance outright.
His children didn’t discover this until the father died, and it upset the son, especially because the father named the sister to manage her brother’s trust. The daughter was so uncomfortable that she hired a bank as co-trustee. That way, Macklin says, “she could always blame the bank for making decisions that the brother didn’t like.”
If you’re worried you’ll strain your relationship with your kids by letting them know in advance you’re planning an unequal distribution, Kramer suggests you write each child a letter explaining your reasons. Then give the letters to the lawyer who drafted the will, who can give it to the kids upon your death.
Aim for equity instead of equality
The default choice to minimize sibling struggles is to split assets evenly, but every family dynamic is different, Kraus says. There could be outstanding loans that the parents gave their children, money given unevenly while the parents were alive, or a special needs child who requires additional resources. One child might have helped the parents more as they aged. “There is no single right answer,” says Kraus.
Kramer suggests thinking about the division of your assets in terms of equity rather than equality, considering each child’s circumstances and needs. If that exercise leads to an unequal asset distribution, that’s okay, as long as you let your children know your thinking.
Keith Singer, a CFP and estate planning attorney in Boca Raton, Fla., agrees that children can get on board with an unequal distribution if they understand why it’s fair.
One of his clients, he says, has a business worth a few million dollars, as well as several million in other assets. One of his three sons worked with him in the business; the other two built successful companies of their own. The father plans to give his business to the son who worked with him and split the remaining assets equally.
When Singer pointed out that the client would be giving one child significantly more than the others, the father said, “Well, he earned it, because he helped build that business.” Singer said the father subsequently discussed his intentions with his sons, who all agreed with his decision.
Get creative to achieve balance
You can lessen the sting of an unequal inheritance for the child receiving less money by leaving other assets that will help them feel valued — say, a treasured painting or family heirloom. “That shows them, in a different way, that they are loved,” Kramer says.
The key, says Brenna Baucum, a CFP in Salem, Ore., is to “think through the types of assets that you have and what fits each child.” For example, she says, if one child is struggling with housing, you might consider leaving that child your house instead of a portion of the investment portfolio.
Ask a neutral party for help
If you are uncomfortable discussing your plans with your children, enlist help from a financial planner, estate planning attorney, financial psychologist or other pro trained in financial matters and family dynamics. The expert can coach you on how to handle a conversation with your kids or be present at the meeting to guide it.
Gary Shunk, a coach consultant with Aligned Family LLC in Chicago, often works with families and financial advisers to help broker these discussions. He recalls working with a widow in her seventies who had two children, one who never married and another who was married with three kids.
“There was a potential conflict, since there were more heirs on one branch,” he says. Shunk coached the mother to meet with both children and focus on explaining her interest in investing in the grandchildren’s education. The single child was able to accept that, with no hard feelings.
If you plan for the emotions attached to an uneven split of assets, as well as the physical division, that’s the type of outcome you can get as well.
“The hard-earned assets that you’ve worked your life for will live beyond you,” Baucum says. “That’s what most of my clients want to see — their kids utilize this money meaningfully to live an enjoyable life.”
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
