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David Werdiger helps family enterprises navigate intergenerational transitions and make good decisions together. His diverse background gives him a powerful mix of skills and he brings all parts of himself together in unique and innovative ways. In his third career as a family enterprise advisor, David is a best-selling author on wealth transition, an experienced non-executive director, second generation family member and family office principal, and a dynamic speaker and educator. He was previously a software geek and a tech entrepreneur.

Parents often say that their children are all equal. But when it comes to the things that families often do for the benefit of their children, it can get complicated. Let's consider some real-world examples:

Education: You want to pay for your children's university education. One child does an arts degree, while another starts with a psychology degree, then does a master's and now wants to do a PhD. How much should they each get for this? Should the child who wants to take a gap year and travel but has no plans to go to university be able to draw on funds for that purpose as well?

Housing: You want to help each of your children buy a house as their primary residence. To do this 'equally', you might gift them each the same amount of money for this purpose.

But what if they live in cities with very different cost of housing? How many large homes with gardens can you buy in a nice suburb of Dallas for the same price as an apartment in central Paris?

Let's say they both live in the same suburb, but there is ten years age difference between them? What a house cost ten years ago would not get very much today! How do you 'equalise' for that?

What if the kids have different needs when it comes to housing because of their relative family sizes? If your three children have zero, five, and two children respectively, do you split things 'equally' between them?

Income supplement: Time is a very important 'unequaliser'. One patriarch discussed with me the annual income supplement he gives his four children. From age 25, they each get a set amount each year. But there are eight years between eldest and youngest. I asked if he indexes the amount for inflation. Now he does.

But even then, is it really equal?

Special situations: What if a family member has a medical condition? The family pays their expenses, but should other family members be financially equalised? It sounds absurd, but ... (little surprises me anymore).

Family Business: What if there's a family operating business and some children are employed and some are not? Crafting good policies in that context is enough for a whole other article!

The bottom line is that equal means different things to different people. And all our children are different, even if they are identical twins!

Fair instead of Equal?

OK, so perhaps let's aim for 'fair' instead?

That might make more sense. A 'fair' family policy might include supporting education costs, housing, medical, and an income supplement. The specific amounts distributed would still be a function of personal choice (what to study, where to live, how many children to have), and of some things that are outside anyone's control (e.g. medical).

But ... they would NOT be equal.

Where family policies for certain uses are on a 'only if needed' (like medical) or 'use it or lose it' (education, housing) basis, do we then seek to equalise between children financially through some adjustment? This is another potential minefield.

Case Study

To see this in practice, let's consider the case of Adam & Betty - both aged in their 70s - who have three children Charles, Diana & Eric, each partnered. In the third generation there are eight ranging in age from 27 down to 15, distributed very unequally (as often happens) between the three branches.

They are seeking advice as to how to they divide their estate. If it goes equally to G2, then it will be vastly unequal as it passes to G3. So instead, they choose to 'generation skip', and distribute their estate equally among the third generation. They are aware that this means Charles' family get 62.5% of the wealth, but to them, in the long term it is 'equal'.

When they inform their children of their plan, their youngest Eric is livid. Is his branch of the family 'penalised' for not having as many children? Charles & Diana are also uncomfortable with the idea, as it risks creating resentment between the siblings.

How to deal with this?

There are two issues at play here:

1. Striking a balance between equal and fair
2. Setting policy with fair process

This plan has failed on both measures. The options they considered were either equal for G3 and unfair for G2 or vice-versa. Furthermore, foisting their flawed plan upon the G2s quickly led to friction.

The solution starts with engaging the G2 in the discussion about their estate plan. Doing this acknowledges them as stakeholders whose input is valued. Betty explains their struggles with dividing the estate equally and fairly. They all start to brainstorm ideas about a process that can find some middle ground.

Should they split it 11 ways (between 3 G2s and 8 G3s)? That doesn't feel right either - G2s ought to 'rank' higher than G3s. They agree on a two-step approach: firstly, having a G2 pool and a G3 pool, each of which are distributed equally within that generation. That principle seems fair to everyone.

The next step is to agree on the relative size of the two pools. The most 'equal' way would be 50/50 between G2 and G3. That means half of the estate is split between 3 G2s (16.7% each), and half between 8 G3s (6.3% each). This still doesn't feel quite right, given some of the G3s are already in their late 20s.

After discussion over a simple spreadsheet to try out options, they agree that 40% of the pool should be split between the G2s (13.3% each), and 60% between the G3s (7.5% each). This represents a balance between equal and fair.

Conclusion

As much as we want to treat our children (and grandchildren) equally, they are different people with different needs and live choices, so seeking to engineer equal outcomes is fraught with unintended consequences.

An appropriate approach is firstly to give the (adult) stakeholders as seat at the table and a voice in discussions about the family policies that affect them. Even if they are not the final decision-makers, making them part of the process gives them a sense of ownership on the outcome.

While equality often cannot be maintained, maintaining a fair process around these and related decisions helps the stakeholders both understand the complex nature of these issues, and be comfortable with the decisions.