By Eric Reich
Whenever clients are in the office discussing estate planning, I always ask the question, “do you want to treat your heirs equally or fairly?”. At first pass, most people think these are the same thing. Equally and fairly, however, are definitely not the same. Many times, it depends on who those heirs are. A second spouse is typically viewed very differently than your children, etc. Likewise, children working in the family business are not the same as children not involved in the business. So what’s the difference? Equally is where everyone gets the exact same amount and possibly even the same asset divided equally. Fair on the other hand is when heirs are given what they “deserve”. Yes, this can be tricky because who is to say what someone deserves? Well, you are because it is your money.
Planning your estate with second marriage spouses can be tricky because many times there may not be the same relationship between you and your spouse compared to your children. Leaving them all the same asset can cause problems especially since you are no longer here to be the peacemaker. I can’t tell you how many times I’ve seen someone leave their vacation home to both their children and their second marriage spouse. This is a recipe for disaster. Let’s say you have 3 kids and a second marriage spouse. Leaving the 3 kids the vacation house is bad enough because they and their respective families will all want to use the house and typically at the same time. Now add in a second marriage spouse and worse the spouse’s new spouse, if they later remarry, and then you can probably be assured no one in the family will ever speak to each other again. If you really want your spouse to have the vacation house, then leave it to them and compensate the children with other assets. Have a written plan for how the house is to be bought out if the heirs can’t seem to find a solution to the usage of the property. Many times one of the family members wants to buy the others out of the property. They may even feel entitled to a discount on the sale price since they are family and not an outsider. This only hurts the other heirs however, so clearly spelling out the details of how it gets sold, valuation, etc. can alleviate many of the potential problems before they happen.
If your children are your only heirs, it might seem a little easier, but that isn’t always the case. Often, a parent might have lived with one of the children or had a particular child take care of them in the final years of their life. Should that child receive the same inheritance if they clearly did more for the parent than the others, or should they be treated more “fairly”? The same goes for family businesses. If one kid works in the family business and the others don’t, should they all inherit the business? I would suggest no they should not. If you want the business to continue, giving inexperienced family members ownership in the company will likely only cause problems to both the child in the business as well as for the business itself. There are plenty of other ways to compensate the child that is not in the business without giving them ownership. They can inherit other assets such as a house, investments or better yet, your life insurance. For me, life insurance is the great equalizer. I can buy (assuming I’m healthy enough to qualify) as much insurance as I need to balance out the non-involved child’s share of the business and everyone gets what is fair for them.
Lastly, what about the child who was the caretaker of the parents? Should they get more than the other children because they incurred more costs, time, or challenges of taking care of mom & dad? That is something you’ll want to decide when planning your estate. It may be viewed as more fair for that child to receive more of the assets based on what they did for the parents than an heir who lived across the country and never “helped out” mom & dad.
Answering the question of fair vs. equal can go a long way to mitigating future family squabbles over your estate.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a
Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations. A lifelong resident of Cape May County, Eric resides in Seaville, NJ with his wife Chrissy and their sons ,CJ and Cooper, and daughter Riley.
