C-PAID and founder Paul Wood FRSA were recently featured in articles for Yahoo and GOBankingRates discussing how to equally split inheritance amongst heirs. Paul Wood’s take on it is that ‘equal isn’t always equitable’.
Paul’s full thoughts on this issue are as follows:
Dividing assets equally among heirs can be tricky, especially when considering complex holdings like real estate, businesses, and investments. However, equal isn’t always equitable. Here are some points to consider:
Understanding Equal vs. Equitable: The notion of ‘equal’ may not always lead to a fair (equitable) outcome. An equitable distribution, considering the individual circumstances of your heirs, could be more suitable. For instance, one of your children may be in good health, with their own business and a mortgage-free house, while another child may be unable to work and reliant on the local council and benefits. An equal solution would be to split everything equally, but arguably the first child in this example is in less need than the second child. An equitable (fair) solution may be to gift the latter child a larger distribution so that they can drastically improve their own quality of life.
Professional Valuation: A comprehensive and accurate valuation of the estate is important. Professional appraisals of significant assets such as properties, valuable items, savings and investments should be undertaken. If you own any businesses, this should also be taken into account.
Interpreting the Will: The clarity of your intentions, and how they are expressed in your will, play a crucial role in asset distribution. I would always recommend seeking the services of a professional will writer at a law firm or will writing company. They can help you to ensure that your intentions are expressed clearly in your will and leave little room for ambiguity. Ambiguous clauses can often cause conflicts when you have passed away and the estate needs to be administered using the will.
Liquid Assets and their Division: Not all assets are easily divisible. Sometimes, selling them could result in a financial loss or tax implications. Depending on the asset, other options such as buying out the heir’s interest in the asset or compensating them with other assets should be considered.
Tax Implications: It’s crucial to consider the tax implications of inheriting assets. For instance, inherited property may be subject to capital gains tax if sold. It’s normal to wrap up assets in a trust for tax efficiencies. If you are thinking of doing this, I would recommend you consult with an expert in setting up trusts for inheritance.
Negotiation and Mediation: Encouraging negotiation and mediation among heirs while you are alive can help to reduce disagreements and prevent disputes from escalating, particularly if you are aware that your wishes for distributing the estate may cause some resentment.
The reality is that disputes often occur, despite one’s best intentions. In my work, we deal frequently with contested probate and inheritance disputes. Our involvement usually comes when open communication has broken down (or communication was never open in the first place), disagreements have escalated, and the heirs need assistance in seeking their rightful entitlement. By considering the points above, hopefully such conflict can be avoided and your intentions can be held to their truest meaning when you pass away.
If you have been unfairly excluded from an inheritance, or you have been included but not by a reasonable amount, don’t wait – get in touch today. The time limit to contest this can be as short as 6 months.