Equal v. Equitable: Factors to Consider in Your Estate Plan Distribution

An equal distribution is not always an equitable distribution when it comes to dividing up your assets among your beneficiaries after you pass on. By far the most common method of leaving assets is to divide the assets equally among your beneficiaries. If you have four kids, they each get 25%. But sometimes, that isn’t always the best idea.

There are some cases where an equal split wouldn’t be equitable or fair. Perhaps one child has acted as your caregiver. Perhaps you have advanced one child a considerable amount of money and none to the others. Perhaps you have had a falling out with a child and haven’t spoken to him or her in years. Perhaps you have a child with special needs who will need a lifetime of care. Perhaps one has an addiction issue, or a money management issue.

During your lifetime, your beneficiaries are unlikely to know about an unequal distribution in your estate plan documents unless you tell them. However, your beneficiaries are almost certainly going to know that you have made an unequal distribution after your death. A will is a public document, so everyone and your neighbor can see how much you left each beneficiary via a will. A trust is a private document, but under Missouri law each qualified beneficiary (like a child who will get money under a trust) has to be informed of their legal right to request a copy of the trust after it becomes irrevocable upon your death. Note that in a trust, a disinherited child would not receive a copy of the trust after your death since he or she would not be a qualified beneficiary.

Since it’s probably not going to be a secret about how much each child gets in your estate planning documents after you pass on, you’ve got to weigh the potential problems against the potential advantages of an unequal distribution. There can be some steep downsides to an unequal distribution: A child who knows she or he received an unequal share is a recipe for sibling disharmony. He or she may be mad at you, or at the other siblings. Furthermore, an unequal share can also translate into a lawsuit against your trust or estate. A child with an unequal share could sue for any number of real or made-up reasons, including undue influence and lack of competency. Whether the child would win or lose the lawsuit, it is still a lose-lose situation for you today – even a frivolous lawsuit costs thousands of dollars to address. No one wants their money going to the court system.

There are some ways to end up with the correct result while minimizing these disadvantages. First, you can give out money during your lifetime to correct the inequality. If one child needed help with a down payment on a house, give the other one a commensurable amount to put towards their home equity. If one child is acting as your caregiver, enter a personal care agreement so that he or she can actually be paid under fair terms for that help. As a plus, personal care agreements are also compatible with Medicaid when properly drafted. If you have a child with special needs, set up a special needs trust or MO Able account and fund it during your lifetime.

If you aren’t ready to hand out money like that, or you need those assets during your lifetime, you can quietly give an unequal distribution upon your death through non-probate transfers like TODs. So under your will or trust, each child gets an equal amount, but would also have a bank account which is transfer on death to your caregiver child to compensate them for lost wages or their compassion in caring for you. A non-probate transfer is much harder to find out about because there are no mandatory disclosures like with wills or trusts. On the flip side, though, your children could find out, and “hiding” money like this can make an even bigger mess than doing it openly.

It sounds silly, but probably the best way to avoid a problem like this is to simply tell your beneficiaries why you are doing an unequal distribution. Giving a logical reason, along with a gentle reminder that it is your money to distribute however you want (or even use up during your lifetime), is usually sufficient to head off significant family disharmony or lawsuits. They might not like it, and there may be arguments, but it is better if it is aired and cleared before you pass on.

Confrontation can be hard for some people, though. If you are uncomfortable talking to your beneficiaries about your choices, you can explain them in your estate planning document. Waiting until after your death to tell your beneficiaries of an unequal distribution may get you out of a confrontation, but can be a rude surprise for your beneficiaries. Even if you have a logical basis for your decision, feelings aren’t based on logic. Someone with hurt feelings is far more likely to break up the family or sue. It is better to let your beneficiaries know in advance so that they can process those feelings before you pass on and reduce the chances of problems – but if that isn’t possible for you, a late explanation is better than no explanation at all.

If you have a child with alcohol or money problems, an alternative would be to leave that child’s funds in trust. You can give him or her the same amount as the other siblings, but the Trustee would be handling his or her money instead of the child. The distribution therefore would not be unequal, but you would have greater control over how the assets are spent.

If you are considering making an unequal distribution, there are several paths to consider and pros and cons for each. Consult an estate planning attorney before making any decisions.