10-point personal finance checklist for parents to ensure fair division of wealth among children

Are parents partial to one child over the other? This question led to a long and heated debate among friends recently. Parents try their best, said those that wanted the argument to end. But the number of instances of partiality that surfaced was staggering.

We might have travelled some distance from the traditional favouritism towards male children in Indian homes. Paternalistic authority is quite alive even in many educated urban homes but women thankfully have increasingly bigger roles to play. What are the personal finance aspects that modern parents must take care of, so they are protected from the accusation of partiality?

First, consider the explicit and unfortunate differences between your children and negotiate with them to help them understand why differential treatment may be justified. A child with a disability or handicap needs more attention; a child with a disadvantage to pursue opportunities for growth might need support; a child that faced unfortunate life events might need different treatments and so on. Siblings resent these differences as kids but grow up to understand why it is so. Keep an open conversation that helps everyone understand the differences and accept them, even if gradually.

Second, as they grow older, the differences between otherwise normal children are even more visible. The bonding as siblings may be strong or weak, but the differences in their successes academically, financially and in life itself might be stark. Make sure that you do not allow the merits of their personal situations to impact your decisions with respect to finances. Spending for one’s education over the other; enabling one’s business over the other; and so on. They should know that they have equal access to the parental funds and support in their upbringing and that their merit or lack of it would not make it different.

Third, do not allow your biases to modify how you spend or support a child. Some parents tend to favour children who live their parents’ dreams. They like compliance and the satisfaction it provides. Others favour the lazier and wayward child over the other justifying it as based on need. Children recognize what is unfair and unjust. Parents are emotional about successes and failures of their children and their biases can sometimes be implicit. They are unaware of their behaviour but the others see and perceive it.
Fourth, do not treat the expenses as investments. Some parents are guilty of spending on the child whom they believe will take care of them. The bias towards boys over girls happens in that context even if evidence shows that parents with girl children have a better chance at being cared for in old age. Backing the successful child overtly over the other average performer; bias towards the child that is more obedient than defiant were all arguments heavily vocalised in our discussion. Treating their own finances and well-being as independent from the future financial lives of their children is a welcome modern trend that keeps parents from going overboard.
Fifth, use simple tools such as percentage nominations in investments to divide your estate equitably among children. In an anecdote that drew laughter, one pointed out how a father divided his investments equally among his two sons. They found out after his death that the appreciation in one portfolio was dramatically different from the other. They were equal investments, but managed to perform very differently. Much like the children themselves!

Sixth, do not own properties jointly with children and leave it behind to the joint owner to the disadvantage of the other child who is not a part owner of the property. Resort to a more formal system like a Will to indicate how your assets will be divided amongst the children after your time. If you have multiple immovable assets with differential valuations, do not treat them equally because it is easy and convenient to do so.
Seventh, make sure you have listed your financial assets, including insurance, and have kept the paperwork available for your children to inspect when you are gone. Even if you did not have a Will, nominations will help divide the assets. Financial assets are typically easy to value, access, divide or liquidate as required.

Eighth, do not extend your partial attention to the grandchildren. Grandparents melt in fondness when it comes to their grandkids and go overboard in trying to bestow attention, love, care and in many cases gifts and monetary benefits on them. Keep in mind that your responsibility can only extend to your own children and overarching to the next generation can create inequity. You will also step on the parental authority your children and their spouses have over their children. Allow them to make the decisions for their child; you have already made yours.

Ninth, do not use gifts as a route to distribute your wealth to your children. Gifts are irrevocable distributions. They are also unconditional. You may not expect your child to care for your spouse because you gifted the house to them, for example. Keep gifts equally divided amongst children and within reasonable limits that your wealth may permit.

Tenth, do not confirm the children’s doubts by telling them you care for one over the other even if you do. Also don’t take their word for cordiality at face value. Assume the worst when you divide the assets, as nothing is lost if they are indeed amicable all their lives. Their relationship may be tested by life in ways you won’t imagine.

The courts of the land are filled with cases of quarreling siblings who believe they didn't get a fair share of the parental care, attention and wealth. Avoid that hassle for your children by acting decisively, fairly and equitably when you bring them up, fund their dreams and aspirations and leave behind your estate for them.

Your children just have a set of common parents. They are different individuals whose paths branch off at every stage of their lives. Their education, their jobs, their spouses, their children are all points of distance and difference in their lives. Add to it their own preferences, choices, decisions and attitudes and they're bound to face differential outcomes in life. It is not the job of the parent to struggle to even these differences out. They won’t go away. Nor can they be made good with money. Being impartial, fair and equitable is a challenge and prime yourself up for it. Good luck.

(The writer is Chairperson, Centre for Investment Education and Learning.)