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Wednesday, December 30, 2009

Is "fair" the same as "equal"?

One of the biggest issues facing business owners and farm owners, and anyone else whose finances are largely composed of one large asset, is how to divide their estates among their children in a way that is fair. Most parents want to leave their children equal shares. If you want to leave your business or farm to only one child, you may not have enough other assets to give the same amount of value to your other children.

Before getting too deeply into the mechanics of how you can treat all of your children equally, you might want to explore the question of whether treating them "fairly"is really the same as treating them "equally". Maybe treating everyone the same is not the fair thing to do.

For example, if one of your children has been working along side you in the business for years, he or she has probably helped you to build your business and increase its value, whereas the other children have not contributed to the value of this asset. It's even possible that the child who worked with you in your business would have been better off financially if he or she had worked at a career separate from the family business. Perhaps it would be fair if the child who contributed more receives more.

Also consider that a child who is given the family business or farm is not necessarily being handed a monetary gift. The child is being given an opportunity to run a business and earn a livelihood but he or she will not receive any monetary value without contributing effort and time. The other children who are receiving cash need do nothing to realize the value of their part of the estate as it is simply given to them as a gift.

Before looking for ways to give an equal distribution to your children, think through this question about fairness to decide whether in your case an unequal distribution might be a more appropriate way to go.

Sometimes parents want to make an unequal distribution but they are concerned that if they do so, the children will not understand the choice and might be upset or disappointed. It is always the goal of a Will to ensure that there are no disputes among beneficiaries, and you can use your Will to make a brief statement that explains your decision to make an unequal distribution. It does not have to be detailed or complicated. Your estate planning lawyer will be able to compose a brief statement that is appropriate.

In my book "Succession Planning Kit for Canadian Business" I devote a full chapter to ways to treat your children fairly and/or equally when your major asset goes to only one child.

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