Playing Favourites: How to Plan a Fair Inheritance for Your Children

When it comes to inheritance planning, fairness can be a challenging concept to navigate. Every parent wants to ensure that their legacy is passed down equitably, but fairness doesn’t always mean equal shares. Children often have different financial needs, circumstances and skills, making it essential to create a thoughtful, tailored inheritance plan that balances these diverse factors.

This article explores how to approach inheritance planning with fairness in mind, offering practical advice on how to meet each child’s unique needs while also ensuring tax efficiency. With careful consideration, you can plan your inheritance in a way that both honours your values and provides long-term financial security for your family.

1. Understanding Each Child’s Unique Circumstances

The first step in creating a fair inheritance plan is to assess your children’s individual circumstances. It’s common for children to have different financial situations, career paths and even levels of responsibility when it comes to managing money. One child might be financially secure, while another may be dealing with debt, or have dependents who will need long-term support.

It’s also important to consider non-financial factors, such as their ages and what stage of their life they are in, lifestyle choices, health, or their involvement in family businesses. For instance, a child who has dedicated years to helping run a family business may have different expectations compared to a sibling who pursued a career elsewhere. Fairness in these cases might involve compensating the more involved child through business assets while ensuring other children are not left out.

2. Communicating Openly with Your Children

One of the most effective ways to prevent misunderstandings and conflicts after you’re gone is to communicate openly with your children about your inheritance plan. Discussing your decisions, and the reasons behind them, helps manage expectations and reduces the risk of disputes down the line.

Although these conversations can be uncomfortable, they give you an opportunity to explain why certain choices have been made. For example, you may explain that one child is receiving some of their inheritance earlier due to the caregiving they provide to you, or that a trust is being established for another child to safeguard their financial future.

3. Exploring Trusts and Tax-Efficient Strategies

Trusts are a powerful tool for creating a fair and balanced inheritance plan. They offer flexibility, control and can help manage the unique needs of each child, particularly in complex family situations.

For example, a discretionary trust allows trustees to manage assets on behalf of beneficiaries, adjusting distributions according to their needs and circumstances. This is especially useful if one child requires more support, while another has demonstrated financial independence. Trusts can also protect assets from creditors, divorce, or poor financial management, ensuring that your legacy remains intact.

Whilst the taxation of trusts can be advantageous in certain circumstances, their tax reality can be complex.  It is therefore important to consult your tax to ensure that the trust structure aligns with your family’s specific needs.

4. Fairness Versus Equality: Managing the Emotional Impact

It’s important to remember that fairness does not always mean equal distribution of assets. Depending on your children’s financial circumstances, you may feel it’s appropriate to provide different levels of support to each child. For example, if one child has received substantial financial gifts during your lifetime—such as assistance with a home purchase—you might consider balancing this with a larger inheritance for another child.

However, unequal distribution can lead to emotional stress or family disputes. To mitigate this, it’s important to approach the situation with sensitivity and transparency. Make sure your intentions are clear, and where possible, engage a neutral party such as an estate planner or family mediator to help navigate these difficult conversations.

5. Including Charitable Giving as Part of Your Legacy

Another way to balance your inheritance plan is by including charitable giving. Donating a portion of your estate to causes that matter to you can reduce the inheritance tax burden and leave a positive, long-lasting impact.

In the UK, charitable gifts are exempt from inheritance tax, and if you donate more than 10% of your estate to charity, your estate’s IHT rate may be reduced from 40% to 36%. This can be an effective way to ensure that your wealth benefits not only your family but also causes that are important to you.

6. Seeking Professional Guidance

Inheritance planning is a complex process that requires both financial and legal expertise. Seeking professional advice from estate planners, tax advisers and solicitors can help you structure your estate in the most effective way. They can assist in setting up trusts, ensuring tax efficiency, and advising on how to best distribute assets based on your family’s unique circumstances.

A professional adviser can also guide you through potential legal and tax pitfalls, ensuring that your plan is both fair and compliant with regulations. Additionally, involving an impartial third party can reduce family tensions by providing unbiased advice.

Conclusion: Planning for the Long-Term

Planning a fair inheritance for your children requires more than simply dividing your assets equally. It involves understanding each child’s unique needs, communicating openly and employing strategic tools like trusts to create a balanced and tax-efficient estate. By carefully considering these factors, you can ensure that your legacy supports your family’s long-term financial security while also reducing the risk of conflict.

Ultimately, fairness is a subjective concept, but with proper planning, you can navigate these sensitive decisions confidently and leave behind a legacy that reflects your values.

What to do next:

Bentley Reid will be sharing more content around inheritance and succession planning.

Need more advice? Reach out to our experts:

Anna Warren – Tax Director

anna.warren@bentleyreid.com

Mike Winstanley- Director, Wealth Management

mike.winstanley@bentleyreid.com