My post 3 weeks ago on “sibling warfare” generated a hot reaction and a request for me to dive deeper into that topic. I’ll start that today by addressing a controversial topic that often leads to sibling warfare: leaving unequal inheritances to your kids. This topic was the subject of a February 19, 2021 New York Times article by Susan B. Garland titled “The Unequal Inheritance: It Can Work, or It Can ‘Destroy Relationships.’” I have confronted this issue many times in my 44 years as an estate planning lawyer, as clients struggle with the question of “equal vs. fair.” Do I leave my estate equally to my kids, or do a do an unequal division because that would be more fair?
In considering the pros and cons, be aware that this is a bombastic decision. True, equal isn’t always “equitable,” but Garland cautions that “unequal inheritances can trigger sibling fighting after a parent dies. Some feuds end up in court.” Perhaps that’s why, in spite of the many reasons to go unequal, most opt to go with equal. A survey of bequest intentions reported that 93% plan to divide their estate equally among their children, regardless of the children’s financial circumstances. (Source: “Love and Legacy: Are Children’s Affections Related to Parents’ Bequest Intentions?” by Matthew Sommer and HanNa Lim, Journal of Financial Service Professionals, Jan. 2022.)
Even with the overwhelming majority opting for equal inheritances, many parents still wrestle with this decision. Here are 10 reasons parents may leave assets unequally.
- One child may be struggling financially, while others are well-off.
- One child provided care to an elderly or ailing parent.
- One child has kids and the other doesn’t.
- One child has a disability.
- One child is responsible financially and the other is a spendthrift.
- The parents paid for one child’s expensive education or gave them a house.
- The parents bailed out a financially irresponsible child over the years.
- It’s a blended family where the relationship with stepchildren vs. biological children isn’t equally strong.
- Parents leave kids different types of assets, such as a brokerage account to one (that increases in value) and a house to another (that declines).
- You love your grandchildren equally and set aside a portion of the estate to go per capita to grandkids, even if one child has 2 kids and the other has 4.
In the final analysis, if you’re going to leave assets unequally, family counselors urge making an effort to get buy-in from all the kids. Garland quotes Arline Kardasis of Elder Decisions: “To head off sibling strife, parents should explain their decision to each child individually or as a group, or even seek mediation.” As do many others, I’m always eager for a dose of wisdom from Warren Buffett and his Vice Chairman Charlie Munger. My family and I attend the Berkshire-Hathaway annual meeting each year, and when I asked Buffett and Munger to share their views on inheritances, Buffett concurred with the notion of going for buy-in: “There may be circumstances where one child has much more of an interest in one type of an asset or another, and you want to make sure your definition of equality in terms of handling different kinds of assets meshes or at least is understood by the children so they don’t think that you gave a farm or a house or something of that sort that resulted in inequality when you thought it was equality.” On the other hand, Buffett’s 98-year-old sidekick Munger was more circumspect. Sharing the concern of many who steer away from unequal inheritance, Munger (a man known for his directness and brevity) said simply: “If you’re going to treat them unequally, that is poison.” (Click on this link for an article sharing my reactions to the 2022 Berkshire-Hathaway Annual Meeting.
Garland sums up the risk: “No matter what the parents’ reasoning may be for leaving unequal bequests, experts advise that they understand how such a decision can hurt the people they care about most.” She quotes Harry Margolis, an estate lawyer in Boston: “Inheritances are often seen as a proxy for love. It’s hard to give unequal amounts and not have a child feel that Mom loved me less or more. Even an investment banker who doesn’t need the money has feelings.” Bottom line: If you’re going down the unequal path, proceed with caution. You may be laying the groundwork for sibling warfare.
Marvin E. Blum
Marvin Blum’s son Adam with Charlie Munger, Vice Chairman of Berkshire-Hathaway. In response to Marvin’s question, Munger cautions that unequal inheritances are “poison.” Proceed with caution in order to build a lasting family legacy.