Dividing up your estate among heirs, especially close family like children or grandchildren, is a challenge for many Americans. The most common approach when doing their legacy planning is to leave equal amounts to groups of relatives or siblings. But is this always the best approach?
In fact, you may want to consider the benefits of striving for equitable distribution rather than equal division. Here's what this means and why it can be a good choice for families.
Equitable Division Versus Equal Division
Equal and equitable may sound like similar concepts, but they're actually quite different. Equal division of your assets is a straight split in which everyone gets the same percentage regardless of any other factors that differentiate them. For instance, three siblings might each be given 1/3 of the estate.
Equitable division in legacy planning looks at many factors — such as income levels, family size, future plans, special needs, and even personal relationships — to determine what percentage would be considered fair based on these. The goal is often to create a similar end result for everyone, adjusted for their circumstances.
Some Pros of Equitable Division
To be sure, equitable division of assets is more complex and trickier to achieve. But in terms of leaving a long-lasting legacy of providing for future generations, it can be more fair.
If one sibling has cared for a parent for many years — and made financial and personal sacrifices — it may make sense for them to receive a larger share of the estate to make up for this. And if a relative will take in a family member with special needs, they may need more money to care for this responsibility.
Also, consider each sibling's overall expenses. Heirs that have families often pay higher costs of living and future educational expenses than those who don't plan to have a family. Therefore, a grandparent might want to leave more to parents in order to cover these future costs.
The Common Challenges of Equitable Division
As mentioned, equitable distribution can cause conflict among heirs because their inheritances are unequal. Unless the reasoning is clear to all — and preferably explained in advance — this can even raise the likelihood that heirs will contest the will.
The other major challenge is determining what equitable means. This may call for more effort, calculation, estimates of expenses, goal-focused choices, and personal judgment than a simple 50/50 split.
Where to Start
Could equitable division of your assets be the right solution for your family circumstances? If so, start by learning more about applying it in real life. Meet with a person specializing in legacy planning in your state to find the path to provide for your family after you're gone.
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