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Distributing wealth among your kids? Here's help!

May 11, 2009 13:54 IST

Most parents often commit the cardinal sin of dividing wealth in an unequal manner. Though the basic idea is not to hurt the other, it's done to protect the one who seems to be more vulnerable in this big bad world.

Typically, there is a bias towards a favourite/under privileged child or differentiation between son and daughter.

Even educated people suffer from this malaise. However, they forget that this inequality leads to serious rifts between children after parents' death. For example, a successful son or daughter might feel penalised for his/her success because parents have chosen to leave a larger part of their wealth for the not-so-successful sibling. In such circumstances, parents should ensure harmony over financial matters.

  • First, they should talk to their children about inheritance plans. And especially, if they are planning to give one sibling more than the other. Discussing openly with them helps you understand their feelings and reactions.

In most cases, the child who has received a smaller share, will be unhappy even if he or she does not directly object to your decision. Though some of the children might not say anything now, this has the potential to create serious conflict after you pass away.

No wonder, a large number of court battles are being fought among siblings for property or inheritance related matters. There are often accusations of manipulations or papers being signed falsely.

Letting them know well in advance allows them to voice their concerns and leads to some kind of dialogue.

Of course, the simplest way would be to divide the wealth equally, irrespective of their financial situation.

  • Second, if at all there are reasons to make unequal distribution, buy a life insurance policy and nominate the child who needs it more. That means that this child will get additional proceeds from your policy. Also, this is a far less threatening method of leaving your estate to your children.

  • Third, in your will make all your children the executors of estate rather than just one. The best is to have the spouse as the 'Sole Executrix'. But after her or along with her, you must have some other executors, have both children instead of one.

  • Fourth, as a thumb rule, do not leave any specific investments to any child. For example, if you own stocks and properties, a common solution is to give one investment to one child and another investment to another child.

Say, you give shares of company X to one sibling and Y company shares to another. X's share price may multiply 7 times in value whereas Y's decline by 25 per cent. There will be dissent. Similarly, giving two different properties might invoke controversy too.

A better solution is to divide everything in equal proportions. This way they can share not only the risks but also the benefits. However, there are certain exceptions to this rule.

If one of the children is inheriting part of the existing profession, like a lawyer or a doctor, then automatically he/she has an advantage. In such a case, the other one has to be compensated by giving them other advantages in the will.

Importantly, review your will regularly. If you were planning to leave some shares or property in one child's name, but due to unforeseen circumstances you sold them, then you need to make sure that the will is updated accordingly.

Also, if there are power struggles for business ownership, ensure that dispute resolution mechanisms are clearly detailed out in your estate plan.

The writer is director, My Financial Advisor

Amar Pandit in New Delhi
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