Treating family members equally is not always the same as treating them fairly, and vice versa. To address this tricky "political" issue as it affects wealth transfer and control is an expert from Cresset, the US wealth management business.

A theme that arises frequently in this industry is whether treating family members equally in financial terms is actually fair or not. What, for example, happens with the member who doesn’t want to help run the family business and pursue his/her own career, but who also expects to receive a regular dividend from the firm, while another is prepared to shoulder the burden? That is only one such wrinkle to contend with. Fairness raises questions of desert and justice, based on considering particular circumstances. This is potentially very difficult for the “politics” of family life, as history gives eloquent witness. 
 
To wrestle with these issues is Jill Shipley, senior managing director, family governance and education, Cresset, the US wealth management house. The editors here are pleased to share these views; the usual editorial disclaimers apply. To respond, email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

It may seem counterintuitive, but treating someone fairly is not always the same as treating someone equally.  

Particularly with families of wealth, what is fair is not necessarily what is equal. Families typically strive for equality and work to avoid favoritism by treating all individuals the same. However, this approach can cause problems when it comes to passing down wealth or operating a family business. 

With wealth transfer, the objective should be for there to be no surprises and to set reasonable expectations. To accomplish that and help maintain family harmony, the following are some key concepts and questions that should be addressed openly and honestly:

Education – What are the family’s expectations around higher education expenses and how those will be funded? Will each member of the rising generation get an equal amount to pay for college? Should they? What if one member of the family wants to go to medical school, and another wants to attend vocational school? What if one receives a full scholarship and another takes eight years to earn a degree?

Healthcare – Healthcare can be a sizeable expense for any family, particularly when funding multiple generations. But, as with education, should everyone in the family receive an equal amount to spend on healthcare, or should it be based on need? If someone has a chronic condition that requires long-term, expensive treatment, should that person receive more than the family member who is in excellent health? 

Income – As a family grows and the members pursue different careers, inevitably disparities in income will arise. How does a family account for that when planning to pass down wealth? Does everyone still receive the same amount? Does the family member who is a CEO earning a seven-figure salary receive the same as the social worker? Should they?  

Size of family – Successive generations of a family can come in all sizes. One family might have two dependents another might have eight. Do those families receive equal inheritances, where smaller families receive potentially significantly larger inheritances per person? Should it be calculated based on the number of family members for a more equitable approach?  

Tracking gifts – Many parents, grandparents and other family members help fund major life events of the younger generations, such as paying for a wedding, down payment on a home, international travel, or expensive hobbies. What about those younger families who don’t make those types of requests for funds? Should they receive a larger inheritance in the end? Who should track these expenses, and should they be shared with the broader family? 

For families with operating businesses, there is the added complexity that comes with assessing who in the family should be involved in the business and at what capacity, and how should everyone in the family benefit from the business’ success. Again, what is fair is not necessarily what is equal. One family member may be the CEO of the business, while another might be a part-time receptionist. Should they have equal compensation and ownership? How about those family members who have no interest in working in the business at all? Without transparent and open conversation, it can be challenging for the family to maintain strong relationships and for the business enterprise to thrive.  
 

The following are topics that families with operating businesses should explore:
Role in the business – For many families, the business is their largest asset. The question is, should everyone own it equally? Or, should those who are running the business receive proportionally larger equity and income from the business? Could that incentivize other family members to become more involved in the business? What about the upcoming generation? Do they want to be involved in the business?

Have they been asked, and do they have the necessary skills and capacity?

Accessing liquidity – For businesses that generate a healthy cash flow, who in the family should have access to those funds? Everyone? How much should they be allowed to access and how often? Having a clear and well-communicated governance structure and guidelines that spell out how and when cash from the business can be accessed is very beneficial. 

Time to sell – For many families, the time will eventually come when certain members of the family will want to sell the business and reap the reward. What if not everyone wants to sell? Who decides? If the family does sell, does everyone benefit according to each person’s ownership? Do those who have led the business for potentially decades receive a larger stake? Are there, or should there be, buy/sell agreements in place among family members?

Key takeaways
1. There is no right or wrong way to determine what is fair and what is equal. Every family must decide what is best for their personal wealth, legacy and business. The key is to have open, ongoing conversations. 

2. These decisions are not only a matter of money and assets. There is also the inherent impact on family relationships. Feelings of resentment and jealousy can arise if not handled carefully.

3. Discussing these hard topics in an open, inclusive and transparent way can help manage conflict and reduce the risk of a breakdown in the family. Asking family members their opinion does not mean that you have to agree or take their advice, but it gives them a voice. Talking about it, listening to each person’s perspective and assessing overall impact can help avoid surprises and hurt feelings.

4. These conversations are not easy. Seek the help of a trained facilitator. A professional can help take what could be an uncomfortable conversation and steer it into one that brings the family closer together.

Jill Shipley has more than 20 years of experience helping families and family enterprises.