To Be Or Not To Be Equal
One of the important things to consider when completing your estate planning is the reduction of issues. Key to this is a valid will (“Will”) with provisions that are easily accepted and administered. I want to deal with “easily accepted” in this article.
Some Issues to Avoid: Some recent advisors have suggested that when planning the ultimate disposition of your estate to your family members, you consider if a “fair” but unequal division of your assets is preferable to an equal division. This writer suggests that doing this not be “easily accepted” and may create difficulties. Let me explain.
In some 30 years of assisting clients in the administration of estate assets when a family member passes, I have experienced fewer issues when equal division is set out in the Will. You might ask why.
Why an Unequal Division May Seem “Fair”: You may wonder why one would do anything but an equal division of your assets to your children upon your death. The most common answer heard by the writer is that one child may have better financial resources than the other. Another answer is health or other disability issues that increase financial need. The latter may be more easily accepted by other family members than the former. Why does it matter?
The Issues: To understand why you need to be concerned how your assets are to be divided, you need to understand what can happen if someone is unhappy with your plan for division of your assets on your death. While you might think that it is your decision how your assets are to be divided, consider the issues you may be creating in your Will.
The most serious issue is a court challenge to your Will. Those that feel they are entitled to your assets or more of your assets than you provided for them in your Will, may claim, among other things, that you were not capable when you signed your Will, that the Will does not carry out your instructions, or that you were under some improper influence when you gave instructions for the Will. A court challenge results in significant cost and delay, as well as conflict among family members.
The most common unintended result is creation of a rift between family members. Even if the matter is not elevated to a court challenge, there can be hard feelings between or among family members when some are given less than others. This can sever family ties for many years and sometimes indefinitely. Delay in completingadministrationandtherelease of estate, and additional cost may also result. Do you want to leave this legacy for your children?
The Options: This writer is of the opinion that an equal division in the Will is best. Often an unequal division in the Will is the spark that starts a major disagreement and severs family ties. Disputes over “money” are far too common in estate administration. Whatever the cause, even when parents have stipulated that their children will not have difficulties with the choices they may make in their Will, children can surprisingly respond to a parent’s death with disagreement over the administration of the estate. Unexpected emotional responses can occur about what the Will says.
However, it is acknowledged that there may be circumstances where it may be fair that one child should receive more than the others. This writer suggests that the Will may not be the best manner in which to address this. There are many emotional issues that can arise following your death and often manifest in disputes about the distribution of your estate.
The Most Common Approaches: The first step in reducing any potential for disagreement on the administration of your estate is to communicate your plans to your children and obtain their approval of your plans. Be open with them.
Even if there appears to be acceptance of an unequal division, especially when due to unequal financial resources, be cautious.
W here one child has already received gratuitous funds from parents, there are ways to be fair but equal without requiring a child to repay any gift you may have made to them during your lifetime. There are several options:
a. Your Will: There is a concept called “hotchpot” you can use in your Will. This does not require direct repayment of debts, but the debt is included in the final accounting so that all children eventually receive equal amounts taking into account amounts received by them during your lifetime.
b. During Your Lifetime: If during your lifetime you are able to do so, pay to the other children amounts to equal the funds paid to any other child. Then provide for an equal division in your Will.
In many ways equal division assists in easier administration of your estate and as the Will is more easily accepted in that case, and administered without challenge. You avoid the suspicion that one child is favoured over any other.
Summary: There are many other considerations to avoid issues in the administration of your estate on your death. Having a well drafted Will is the first and best consideration. Providing for those who may expect to benefit from your Will, in a manner they perceive to be fair, is by far the next best manner to do so.
While you want to be fair to those who may expect to benefit from your Will, keep in mind that many -potential beneficiaries equate “fair” with equal and not unequal. Keep this in mind when you give instructions for your Will.
by Sylvia Carruthers
sac.law@shaw.ca
403.554.8535
