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Dividing the Estate: Equal vs. Unequal

unequal

“I leave my estate in equal shares to create one share for each then living child of mine and one share, per stirpes, for the then living descendants of each deceased child of mine.”

Perhaps a majority of parents’ estate plans include a similar provision. It’s simple, clean and usually non-controversial. But what if you want to provide for something different? What if your family has unique needs? Whether you have a family business, a child with special needs, unequal lifetime gifting or an estranged family member — there are any number of reasons to deviate from the norm (Also see, “Pot Trusts: More Equal Than Equal“).

Writing for Investopedia, financial journalist Amy Fontinelle recently published an article entitled “Advice on Wills: Should Each Child Get the Same.” Amy’s article does a great job of going in-depth into the reasons for, and consequences of, dividing the estate equally vs. unequally. I communicated with Amy in preparation for her article, and she quoted me in the article on issues relating to potential challenges to wills and trusts.

I highly recommend reading Amy’s article. Without covering the same ground, I thought I would add just a few broad thoughts on how to approach these issues:

1. Consider the full range of family dynamics.  Since the estate plan is likely to be activated either completely or primarily after death, I encourage clients to think through not how the plan will affect my client’s relationship with his/her beneficiaries, but rather how it may affect the beneficiaries’ relationships with each other. In some situations, this may be a driving factor; in others, it may not be an issue. And will it be beneficial then to discuss the plan, and any differences, during life? Again, family dynamics will differ here as well.

2. Think through the full scope of options.  I sometimes hear from clients who are considering reducing or eliminating a child’s share — not for lack of love or affection — but because the child has personal or money issues — things like spendthrift tendencies, divorces, bankruptcy or substance abuse. I explain that their estate planning options are not binary. It’s not only about ‘how much,’ it’s also about ‘how’ and ‘when.’ Through the use of trusts, you can provide maximum benefit to beneficiaries by protecting their shares — from themselves, their spouses, creditors and others. For example, if your child suffers from substance abuse problems, leaving an outright inheritance is likely to be destructive. On the other hand, a trust that provides direct support and incentives for a positive lifestyle may provide the support needed for positive action.

3. Engage a professional.  Regardless of how you ultimately decide to structure your estate plan, you want it to accomplish your objectives and be carried out as directed. Otherwise, why bother. In “10 Estate Planning Steps to Avoid Family Inheritance Disputes,” I explain why independent legal advice is critical to the success of a quality estate plan. This is especially so when the plan includes unequal shares, unique terms or problematic family members.

I’ve only scratched the surface of this issue here. The considerations are always unique and multifaceted. Ultimately, it’s your estate and your legacy, and your estate plan should accurately reflect your objectives and wishes for your beneficiaries.