One of the most common estate planning questions we hear is whether assets should be divided equally or equitably among heirs.

When it comes to estate planning, few decisions are as emotionally charged – or as consequential – as making choices about how to divide your wealth.

For many families, the default instinct is simple: split everything evenly between the children, and maybe the grandchildren. That seems fair, and it avoids the potential charge of favoritism. It’s also easy to explain.

But as families grow more complex through blended households, unequal financial success among the children, caregiving responsibilities, and more, that instinct often collides with this question: Is equal really fair, or is equitable a better approach?

It sounds as though those terms can be used interchangeably, but they refer to very different concepts.

Equal vs. Equitable Distribution: What’s the Difference?

An equal distribution is just like it sounds. Each of your heirs receives the same share of the estate. It’s straightforward and easy to implement.

On the other hand, an equitable distribution adjusts inheritances based on the individual circumstances and needs of your heirs. The goal is not to treat everyone the same, but to treat them in a way that is fair, based on how you define that. It’s a more nuanced approach.

Obviously, each has its pros and cons. As estate planners like to say: “what’s equal is not always fair, and what’s fair is not always equal.”

When Equal Distribution Makes Sense

Let’s say you have four children and $2 million in assets that you plan to distribute to them. This is just math. Each kid gets $500,000.

It’s a cookie-cutter approach that often works best when the beneficiaries are similarly situated in age, financial status, or life stage.

But there may be times when an unequal division of assets makes sense.

When Equal May Not Be Fair: Real-Life Family Scenarios

Let’s examine some common situations.

If one child earns significantly less than the other, an even split could result in unequal outcomes.

David (not his real name to protect his privacy) is a retired physician in the Princeton area. He has one child from a previous marriage who has done exceedingly well in business and doesn’t need any financial help. Two younger children from his second marriage are hard-working parents with young children of their own, but far from wealthy.

“There is no such thing as equal,” David says. “If you try to do that, you’re foolish. There’s only equitable.”

He adds that they are “completely different people with different needs and wants.”

Merrill Lynch notes families that tend to have the smoothest experience transferring wealth to the next generation are those with children who are close in age, with similar interests, temperaments, health, and lifestyles. Conversely, big families with large age gaps between the oldest and youngest children have a more complicated task.

Other Situations That May Call for an Equitable Approach

If you have a child with special physical or cognitive needs, they might need more money than your other kids. They might also require trusts, while the other children receive outright gifts.

You might already have given substantial financial aid to one child, such as the down payment on their first home. Your equitable distribution might offset some of that support to be fair to the others.

You might want to provide extra support if a family member quits their job or holds back their career advancement in order to care for you. This person might be “rewarded” in an effort to compensate them with a larger inheritance.

Here are some other questions to consider and discuss with your financial planner as you evaluate your approach:

• What do you do if one child has consistently disappointed you with their financial irresponsibility? Should they get more or less than the others?
• Do you have a child with substance abuse problems? If so, will an inheritance cause them more harm than good?
• Does one child have more children of their own? Do they deserve a bigger share of your estate?
• Does one child have a spouse who is independently wealthy? If so, should they be penalized for that?

Two strategies many estate planners advise for some clients include Trusts (especially when young heirs are involved), and life insurance policies that can balance distributions when property and businesses are involved that may be hard to divide.

Why Communication is Key to a Successful Estate Plan

As uncomfortable as it may be, holding open and honest conversations with your heirs is critical in making your plan work as intended.

The goal is to minimize the risk of family disputes or legal challenges. Ideally, your talks will help them understand that fair doesn’t always mean equal. When your kids understand the rationale behind your decisions, it could help minimize misunderstandings, resentment, charges of favoritism, and long-lasting emotional wounds.

Even the most carefully written estate plan can fail if communication is absent.

You don’t have to share every detail or divulge exact dollar amounts. Just provide enough information to help your heirs understand your reasoning.

David, who we mentioned above, has held conversations with his kids. “We got feedback,” he said, “but not pushback.”

Aligning Your Estate Plan with Your Values

The bottom line is that you should consider developing a plan tailored to the unique circumstances of your heirs. Your estate plan should reflect your values, and so should your division of assets.

If you’d like to learn more about how EKS Associates helps clients with intergenerational family wealth planning, click here. Or reach out to us, we’re always happy to talk.

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