The fairness trap: 9 tips for families in transition

By J. Kevin Heaton

Often, parents and children have wildly different interpretations of what is fair

 

When families are feuding, fairness is always an issue—and usually, it’s about more than just money. In my 20 years of meeting with family-owned enterprises and managing family wealth, I have yet to meet a family who is free from the struggle of defining fairness among family members. Why is it so hard to define fairness?

Maybe because fairness is about more than the money — it’s often about feelings. Take, for example, a meeting I facilitated with a family and their newly formed family counsel. All of the assets were equally divided among the children and it was now their responsibility to manage them. A CEO was nicely settled into running the family business. The real estate assets were being actively managed by a family member. It could not have been fairer by a measure of dollars. But, as nature would have it, unfairness became a topic of discussion.

When it comes to transferring wealth to the next generation—especially when those next generations are involved in the family-owned business—fairness goes beyond its textbook definition of “impartial and just treatment or behavior without favoritism or discrimination.” But why? Generally speaking, fairness is defined by rules that are garnered from our faith, family or institutions (e.g. government). The "rules we live by'' are set by small groups of people and applied to larger groups of people in hopes of achieving fairness. We even have a judicial branch to referee our “fairness.” However, when it comes to families gifting their wealth to the next generation, fairness is in the eyes of the Grantor.

Different from the “rules we live by” and the system that enforces them, a Grantor, who either created the wealth or, in some cases, inherited the wealth, is faced with being the judge, jury and executioner—unless “mom gets involved to protect the innocent.” At some point in a Grantor’s life, s/he will face an overwhelming burden: to define fairness amongst those s/he loves most and then be subject to their judgement while living, after death, or both. It might seem easy to address, unless of course, you have been in their shoes.

Fairness is a two-way street, and often needs a crossing guard. On one side of the street, we have the Grantor whose personal perception of fairness creates a framework for distribution of wealth among family members. On the other side, the beneficiary of that wealth creates his/her own interpretation of fair based on the size and distribution of the gift. But crossing the street is complicated by the oncoming traffic of opinions from family members, married-ins and friends, not to mention the evolving weather of emotions that can threaten to disrupt progress in an instant, without warning. Here are a 9 philosophies that create harmony for families in transition:

1) Remember that wealth is a gift not an entitlement. As a whole, beneficiaries tend to take better care of the gifts they receive than entitlements they think they deserve. When families frame an inheritance as a gift and something to be thankful for, they foster a culture that embraces that very philosophy—and the great responsibility that comes with it.

2) Your wealth is not your only giftMeasuring fairness in assets only devalues the many other intangible gifts (location of an asset, type of an asset, skill sets inherited, access to family vacation homes, land, to name a few) that have been passed onto the next generation.

Sometimes the beneficiary who receives the least is ultimately the individual who does the most with their gift. That is because they focus on what they can do with what they have been given, instead of obsessing over what they “should have” received. Here’s an example: One side inherited what was a strong-cash-flowing crop business that lasted for three generations, while the “unfavored” side inherited warehouses that they grew into a $100 million dollar enterprise. The father’s gift was matched to the skill sets of the children; no one would have ever guessed the outcome.

3) Equality is not achievable, but fairness is. No matter how hard you try, you cannot achieve equality because it is about more than money. It’s tied up in timing, genetics, opportunities, good old fashioned luck, and so many other factors. And money is not the great equalizer. Just as the legendary football coach Jimmy Johnson once said, “I did not treat my players equally—but I was fair to each of them,” we must embrace the idea that a Grantor is empowered (and obligated) to customize the size and scale of a beneficiary's gift based on individual needs, motivators, and stages in life.

4) There will always be a needy one. Just plan on it. There are always family members who are constantly in need of money. The ones for whom “nothing is ever their fault” or “have the worst luck.” Accounting for them can involve more nuanced planning (special trusts, trustees, therapists, hard love). Whether it is over-spending, business failures or marital issues, these family members not only threaten the family’s ability to achieve or maintain harmony, their bad decisions often take money from those who are independently successful—the whole squeaky wheel gets the grease thing. A Grantor’s challenge is protecting the other family members from self-induced failures. It is very important to note that these individuals are not those family members who face unique circumstances due to mental and physical health—spanning addiction to disabilities.

5) Expectations rarely yield expected results. I have never seen a Grantor's personal or professional expectations of their children, regardless of age, be met with positive, long-lasting results. Children either excel at what they want, the way they want, which leads to happiness, or out of a desire to please the Grantor, which eventually fails with unintended consequences. So use your wealth to help children find their own gifts and offer them the greatest gift (above your love), which is to tell them the story of how the wealth was created (the good, the bad, and the ugly). Share what it was like in the early years: the mountains climbed, the victories won. Let the expectations be the ones they set for themselves—your story will help them do it.

6) Fairness and harmony go hand in hand. Finding family harmony takes so much time (think in terms of years). If it were easy, families would stay together more often. Spend those family meetings and social outings seeking harmony among family members—even when it feels like it is a waste. After all, fairness tends to be both more achievable and more digestible when the family is in harmony.

7) Don't keep score in a game where there is no winner. Siblings or beneficiaries who keep score are playing a game where there is no winner (except the attorneys), and will only foster jealousy, distrust, anger, and resentment between family members. Grantors are human; they are going to give what they want, to who they want, for their own reasons. Instead of keeping score, seek to understand why the Grantor is allocating assets in a certain way and support their decision. The results will be far better.

8) Define "fair". While this may be the hardest thing you will ever do as a family, spend time defining what fair means in your family—and why. Defining “fair” isn’t just for those who have lots of assets; it is for everyone. It starts as soon as there is more than one party who will benefit from a gift you’re sharing with someone, whether it is tangible or intangible. The more you have and the later you do this, the more assistance from outside parties you will need.

9) Let business be business. While I have heard every patriarch/matriarch say “business is business,” it is rarely applied—and for good reason. There is something innately gratifying about seeing your child(ren) carry on your legacy, especially in a family business, and so much so that it can make up for shortcomings of the beneficiary(s). “Let business be business” means different things to different-sized companies, but this is what it means to me: Focus on building a successful and profitable business and let the business pick its leaders. Simply put, family members benefit when the company is successful. The egos of those who do not get “what they are entitled to” may be bruised, but they will maintain their healthy bank accounts.

If you ask the next generation if a gift they received from their Grantor was fair, you will get wildly varying answers that almost always include a “yes, but.” If you ask the Grantor if they were fair in distributing wealth, especially if the Grantor is the parents, I always get an overwhelming “Yes.” But what makes the “Yes” so interesting are the stories that makes it all seem fair in the eyes of the Grantor.

J. Kevin Heaton is a principal of i3 in Columbia, SC

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