Bequeathing Your Values

Help children research their own charities. Talk with them about your family values, and ask them to find worthwhile charities that fit those values. For tax purposes, let’s say you want to donate $10,000 in a calendar year. “The kids are then responsible for researching specific charities or causes that have meaning to them and reporting their findings to the rest of the family,” Clark says. “It helps them see that they fit into a bigger, broader world.”

Children’s involvement upfront also helps them better accept parents’ bequests to charity in their wills. “Kids ultimately fuss less when money goes to charity because they’re involved, and this funds a project in which they feel some ownership,” Provo says.

What’s Fair, What’s Equal?

Your children may assume that you’ll leave equal assets to each. But some circumstances may call for a different distribution, and it’s important to remember that “treating your kids fairly doesn’t necessarily mean treating them equally,” says James Lamm, a partner at Minneapolis law firm Rider Bennett, LLP.

Those who own family businesses know firsthand the discrepancy between fairness and equality. If one child has spent years working in your company, it may be fair to give her equity beyond what she would have gotten simply by being your heir.

Lamm remembers one family in which that didn’t happen. The parents had three adult children; the son was active in the family business, and the two daughters worked elsewhere. “Even though the son was really responsible for running the business as the parents moved toward retirement, they were so focused on treating the family exactly equally from a dollar standpoint that they intended to give the business in three equal shares,” Lamm says. “To the son, this wasn’t fair—he’d put in sweat equity. And the business didn’t provide much more cash flow than what was necessary to pay the salaries and keep the business going. It didn’t have enough to make distributions to the two daughters.”

When the parents died, the children sold the business in order to pay each child an equal share, and the son was out of a job. “His career was the business, and this was his livelihood.” Lamm says.

There are several ways to engineer a better outcome. Consider using life insurance (outside the taxable estate, if possible) to increase your total estate. A larger asset pool may allow you to leave the business to the children who work there and other assets to children who don’t, giving each heir an equal share of the overall estate.