When Fair is not Equal

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When Fair is not Equal

When you are involved in succession planning, and you have more than one child, your estate planning goals may include how will you treat your children both fairly and equally. When your children were younger, you tried to be fair about the size of a slice of cake each would receive, or how much you spent on them on birthday or Christmas gifts. In those scenarios, your goal was to be close. You didn’t get out the tape measure or the scale to ensure each child’s piece of cake was exactly the same (or at least I hope you didn’t).

As children become adults, their idea of fair may be the same as their idea of equal. In certain succession planning scenarios, trying to make things purposely equal or purposely unequal may come with undesired consequences.

One example is where you name your two children jointly as the Executors of your Will, the Attorneys of your Enduring Power of Attorney or the Agents in your Personal Directive. You may choose to do this so your children are both involved in making decisions for you. If you name them jointly in your estate planning documents, they are required to work together to make decisions for you. I have seen many cases where the siblings have a reasonable relationship with each other because the parents are the glue that keep the family together. When the glue disappears, the obligation to keep a civil relationship may disappear as well. If your children do not get along well enough to work together, important decisions concerning your estate, assets and personal health may be delayed. If the deadlock cannot be resolved, a court application may be required to remove one (or both) of your children from these roles. Introducing the court process tends to further fracture the relationship between family members.

Another example is where you name your children to receive your interest in a farm or business. In a similar way, your children need to work together in order to maintain and grow the business. If your children have not worked together in a business in the past, what comfort level do you have they might do so in the future? If your children cannot get along or agree how to run the business and a dispute arises, the business or farm may need to be sold in order to pay out the child not interested in the business.

In a family business, it is more common that one child may be more actively involved in the business more than the others. The parents who are interested in keeping the business in the family in the next generation, may give the business assets to this child and provide other assets to the other children. In some cases the business assets may be worth more than the non-business assets resulting in unequal treatment of the children. In other cases the business assets are transferred to the child during the life of the parents and non-business assets pass upon death which is also unequal treatment (in terms of timing).

It is important to document your decisions of why you have decided on equal or unequal treatment, and to discuss these decisions with your children. If you lose capacity in the future without communicating your intentions, your intentions may not be known or get misinterpreted.

For parents working on succession planning of their personal and business assets, an appreciation of equal and unequal treatment is important. You need to objectively assess whether your children can or should act together in manging your personal and financial matters, and whether they should own and run the family business or farm. Contact your lawyer to discuss the legal impact of decisions of treating children equally or unequal, and what possible safeguards might assist you to obtain a successful transition of your assets to your family.

Les Scholly
Les Scholly helps you navigate the turning points of life. He is a partner with Pritchard & Co. Law Firm, LLP and member of the Society of Trust and Estate Practitioners (STEP). Contact Les at 403-527-4411 or at lscholly@pritchardandco.com