Inheritance: Expectations versus Reality

As if losing a parent wasn’t hard enough, that loss often comes hand in hand with the very real potential for life-changing sibling rivalry over the inheritance. In fact, disagreement over whether an inheritance has been divided fairly is the number one cause of adult sibling rivalry.

At the root of all such conflicts is a lack of clear and consistent communication. When no one is willing to talk frankly about such concerns ahead of time, it’s inevitable that individual players will develop their own expectations about what they “deserve.”

At the same time, the parent—even when well meaning—may also hold opinions or make assumptions that are detrimental to a truly equitable inheritance strategy.

In all such cases, the ultimate goal is to craft a solution that meets as many needs as possible while mitigating stress and—hopefully—eliminating the possibility of out-and-out sibling warfare. A good place to start is familiarizing yourself with all the potential challenges and scenarios that could cause a rift in the first place.

Understanding Individual Circumstances

While it might be easier to leave each of your children with the same inheritance, that plan might not accurately align with the reality of their lives.

For instance…

- What if one child has a disability that keeps them from earning a substantial living and/or creates an additional financial burden due to necessary care

- What if one child is happily married and very financially secure (including contingency plans in case of divorce or other calamity) while another child is single and struggling?

- Do children with families of their own—your grandchildren—deserve more inheritance because they have the added responsibility of raising and supporting kids?

- Or, what if one child has proven to be consistently irresponsible with money while another has been prudent?

There are countless variations of these different situations, and while the stories are universal, each family is unique. The best strategy for avoiding post-death conflict over inheritance is to have conversations ahead of time, preferably with all family members present. In many cases, an agreement can be reached—either independently or with the help of a professional family facilitator—just by talking things through.

Factoring in Support Over the Years

When it comes to inheritance, siblings don’t only look at what they receive at the end of a parent’s life. They also look back at what they and their brothers and sisters have received over the years while the parent was alive.

The informal accounting of “who got what” can get pretty heated if one or more siblings think that they have been shortchanged overall.

For instance, what if…

- One child received a large sum for a college education while another child chose to go directly into the workforce?

- Both children received a college education, but one decided to start their own business, and the parent provided some seed money for that company?

As you can imagine, there are plenty of other items that frequently come up in these kinds of reckonings—weddings, houses, cars, substantial gifts for grandchildren, and so forth.

One way a parent can address these kinds of situations is to “equalize” past gifts by documenting past support in the estate plan. In this context, such gifts are often referred to as part of an “early inheritance,” and thereby accounted for in a way that hopefully helps keep all siblings on a relatively even playing field.

Balancing Bequests in a Blended Family

Managing relationships in a blended family doesn’t get any easier when a parent dies. If anything, it may become even more problematic because—sadly—money is often perceived as an expression of a parent’s love for a child. When a parent is splitting their estate between biological and step children, the parent may often feel a greater responsibility to his or her own children.

There is also the scenario in which the biological children of the deceased spouse may be at risk of losing their inheritance to a step parent. For example, let’s say that a husband dies and is survived by his two biological children and his wife, their step mom. While it would be nice to assume that in all such cases, the step mom would consider her step kids’ wellbeing at least as important as her own, that’s not always the way things go.

In such a case, the father/husband might opt to create a trust that provides for everyone appropriately. Or, he might decide to designate certain assets for the children to receive immediately, and leave the remaining assets to the spouse.

Considering the Value of Caregiving

One of the most common (and contentious) arguments over unequal inheritance stems from disputes over how much reward a caregiver child should receive above and beyond another sibling or siblings. This “caregiver equity,” as it is referred to by professionals, can get very tricky very quickly because siblings tend to have very different estimations of the value of caregiving, depending on whether or not they are the caregiver.

The emotional aspect of this particular situation runs deep. While a child who has moved home to act as a primary caregiver might see her decision as a great personal sacrifice, a sibling may interpret it as a convenient way to eliminate the need to earn an independent living while at the same time paving a path toward, for instance, inheriting the parent’s house as “payment” for providing end-of-life care.

Or maybe the parent gifts the caregiver child a large sum of money to add an in-law suite to their home (an addition that will provide that sibling with a major financial return if they sell the property later, even long after the parent is deceased). Even if large assets like homes aren’t in play, non-caregiving siblings may still take issue with how a caregiver sibling is depleting the joint inheritance to pay for home maintenance or supplemental care.

Again, avoiding this kind of problem comes down to open and honest conversations well ahead of time. In addition to drafting documents that detail the nature and value of caregiving, there are also creative ways to handle financial gifts. For example, instead of gifting a caregiver sibling money for an in-law addition, a parent might choose to provide the money as a loan, which could further be identified as an advance on that child’s inheritance.

Creating Unintended Disparity

Sometimes, an unequal inheritance is a case of the best-laid plans going awry. For instance, a parent might leave two children different assets that the parent believes are of roughly the same value—a piece of property, for instance, and maybe a brokerage account.

The problem is that the value of such assets can fluctuate over time, so—unless that value is reassessed on a regular basis—the ultimate inheritance may end up being extremely lopsided in one sibling’s favor.

There are also tax considerations and other fees to think about—federal taxes and capital gains are applied differently to different kinds of assets. Therefore, what may look to be of equal value on paper, might be very different when all such penalties and taxes are factored in.

Initiating and Sustaining a Productive Family Dialog about Estate Planning

It’s easy to see how quickly even the most well-meaning inheritance plans can go awry, sowing distrust and disappointment between siblings in the wake of a parent’s death. But even the most complicated situations can be successfully addressed if all family members are willing to talk things through well ahead of time.

It might be uncomfortable to start these kinds of conversations, but the benefits for everyone later down the road are so worth the effort. When a family is able to effectively handle these kinds of decisions in a proactive and preemptive way, it goes a long way toward holding that family together in times of grief and loss.

Give us a call when you need help documenting your wishes in your estate plan, we’d be happy to help

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