How to avoid playing financial favourites with your kids
Children have a view about whether their parents are fair or not from an early age. If their siblings are overly favoured, they will let you know. It always surprises me when one of my kids has calculated - often to the dollar - what I did for their sibling. I do try to be financially fair with my kids, as did my parents, but it isn't always easy.
As kids grow up, the bank of mum and dad is not only called on to help pay for a home deposit - it is asked to pay debts, fund divorce and shock job losses as well as grandchildren's private school fees. But if you shell out for one child, what do you do for the others?
One expensive option is to give the other children the same amount of money. Or even increase the amount for the kids who missed out when your estate is divided when you die.
Some parents don't have qualms about being more financially generous to one child over another. The child may be a low income earner while the others are well off. Or a child may have particular needs such as a disability or a mental health issue. Or the parents have a broken relationship with a child and want nothing to do with them.
Anna Hacker, national manager of estate planning at Australian Unity, says often her clients have the view that it is their money and they should be able to do what they want with it.
Robert Monahan, director of estate services at HLB Mann Judd, points out there is no law that says you must be fair to all your children. "You are free to leave your assets however you want," he says.
He recommends that if you can afford to help your children throughout their lives, do it and get the pleasure from seeing the difference it makes, but do it as a loan so the debt is repaid if the relationship breaks down.
But if you prefer to hang onto your assets and settle when you die, Monahan warns that if you don't leave something to heirs or spouses, they can make a claim on your estate. It can tear families apart.
Typically, parents leave equal shares to their children, he says.
Hacker says that equal shares can be problematic. "It can have the opposite effect to what people expect."
Children with challenging personal circumstances and more needs can contest the will on the grounds that they need more money. One child could own property and be well off while another child has no property, is unemployed and struggling. Or they are unwell and unable to work.
"They can argue that they should get more and that their parents have always supported them more," says Hacker.
She says that if you do favour a child, to make it appear fair, divide up the estate equally but allocate something additional to the child you favour. She recommends leaving them your superannuation, which is not part of the estate. You can use the binding death nomination to allocate the super to them.
But to make sure this sort of strategy doesn't send shock waves through the siblings and cause a bitter dispute, Hacker recommends that parents discuss their estate plans with their children. If one child is to receive more, justify the decision early on.
Monahan agrees this defuses the issue. It gives your children the opportunity to speak up, voice any underlying tensions and give their view on the will. It can be important for blended families with children who are fearful they will be left out of the estate. If the parents can't face this, he suggests writing letters to the kids to explain their decision.
If you don't, there is a risk that the will is challenged. While the family can work out a solution, often it can end up employing lawyers and going to mediation and, in rare cases, court.
Hacker says the morality of the claims and people's personal circumstances are weighed up. But expect to pay up and it will mean less in the estate. The wait time can be around 12 months to two years.
"There are no winners," says Hacker. "Almost all of the challenges are because one child is favoured over another."
Another reason to be fair in a will is because you never know what will happen to your children. If you favour one who has less over a successful one, you never know what will happen. A daughter in her 30s with a well-paid job and a nice house could be financially devastated by divorce or illness or job loss in their 40s.