03 Feb Fair Vs. Equal: Shelly Joyner, Associate
Do the terms equal and fair mean the same thing to you? Many families find themselves discussing “fair” vs. “equal” when working with Crain & Wooley. Do any of these situations sound like something that could reasonably happen in your family? These real clients’ stories (with names very obviously changed) shed light on how “equal isn’t always fair and fair isn’t always equal”.
- Blended Family: Moira’s husband, John, died without a will. When she tried to sell their house to downsize, the title company told her there was a problem. Texas is a community property state and misunderstanding of Texas community property laws caused a big problem for this family. In Texas, for example, a home does NOT automatically go to the surviving spouse. Since John died without an estate plan in place, the laws of intestacy kicked in. Laws of intestacy are the state’s valiant effort to distribute assts when no estate plan is in place.
John had a son, David, from a previous marriage along with Moira and John’s shared child, Alexis. Unfortunately, Alexis predeceased John. Alexis’s 2 children were adopted by another family. According to the laws of intestacy in Texas, David (the son from John’s previous marriage) and Alexis’s children inherit John’s half of the house. The grandchildren would have to be found and sign off before the house could be sold, even though John and Moira had owned the house together for 20 years. Doesn’t really seem fair in this situation, does it? If John had planned, he could have created a simple estate plan that left the house to Moira.
- Inter Vivos Gifts: Stanley and Dorothy have two adult children, Michael, and Kate. Kate is a successful sports agent and lives in her condo in San Diego. Michael has led a troubled life and has needed ongoing financial support during Stanley and Dorothy’s lifetime.
Stanley and Dorothy have spent a lot of money paying Michael’s past-due bills, buying new equipment for his band, and paying for a few of his stays in rehabilitation centers. While Stanley and Dorothy love both of their children equally, they’ve spent exponentially more money on Michael than on Kate. Splitting their estate between their children equally didn’t really seem fair to them. To address this situation, Stanley and Dorothy created a Revocable Living Trust to address the “unfair” expenditure of assets on Michael. Their trust made a provision for “inter vivos gifts.” The trust said that their estate would be split equally between their kids, but that Stanley and Dorothy would keep a record of the gifts that were given during their lives to Michael. That amount would be deducted from his share and given to Kate. Stanley and Dorothy felt that distribution of assets brought fairness to the situation.
- Multi-Generational Households: Ricky and Lucy have three children, Fred, Ethel, and Little Ricky. When Ricky and Lucy were in their 70s, the family decided that it would be best if Ricky and Lucy shared a house with Little Ricky.
Ricky, Lucy, and Little Ricky purchased a home together enabling Ricky and Lucy to “age in place”. All 3 of them owned the home together – (1/3 share each ). Little Ricky also agreed to help take care of Ricky and Lucy as they aged. Ricky and Lucy loved all three children equally, but Little Ricky not only paid more than his share of the mortgage every month, but also made personal sacrifices to help care for Ricky and Lucy. Ricky and Lucy decided Little Ricky should get all their 2/3rds interest in the house when both Ricky and Lucy pass away, and then all 3 children would split their cash assets equally. This addressed Ricky and Lucy’s desire to fair in the distribution of assets upon their death.
- No-Direct Descendants: Leslie isn’t married and doesn’t have any children. Her closest “family” members are her best friend, Ann, and Ann’s son, Oliver. If Leslie didn’t create a pro-active estate plan, then the laws of intestacy would dictate who gets her assets.
Leslie refers to Oliver as her “nephew” even though they have no blood relation. Leslie takes Oliver to football games, bakes cupcakes for his birthday parties, and loves him very much. Leslie wants Oliver to be the beneficiary of her estate. If the laws of intestacy were to direct the distribution of Leslie’s assets then they would go to some second cousin she doesn’t really know. Leslie did not want this to happen. Instead, Leslie created a Revocable Living Trust stating that 50% of her estate would be split equally between a list of charities she supported and the other 50% would go to Oliver. She felt that this was fair since she had a relationship with Oliver and didn’t know her second cousins at all.
Are you grappling with the “fair vs. equal” discussion? Contact us. With more than 1,400 families served, we can share numerous ideas on how to address “fair vs. equal”.