That’s Not Fair! Yes, It’s Fair! Well, Maybe It’s Not Fair! I’m Confused. What is Fair?
August 2023
“An estate manager went out early in the morning to hire workers for his vineyard. They agreed on a wage of $200 a day and went to work.
Later, about nine o’clock, the manager saw some other men hanging around the town square unemployed. He told them to go to work in his vineyard and he would pay them a fair wage. They went.
He did the same thing at noon, and again at three o’clock. At five o’clock he went back and found still others standing around. He said, ‘Why are you standing around all day doing nothing?’ They said, ‘Because no one hired us.’ He told them to go to work in his vineyard.
When the day’s work was over, the owner of the vineyard instructed his foreman, ‘Call the workers in and pay them their wages. Start with the last hired and go on to the first.’
Those hired at five o’clock came up and were each given $200. When those who were hired first saw that, they assumed they would get far more. But they got the same, each of them $200. Taking the cash, they groused angrily to the manager, ‘These last workers put in only one easy hour, and you just made them equal to us, who slaved all day under a scorching sun.’
He replied to the one speaking for the rest, ‘Friend, I haven’t been unfair. We agreed on the wage of $200, didn’t we? So take it and go. I decided to give to the one who came last the same as you. Can’t I do what I want with my own money? Are you going to get stingy because I am generous?’”[i]
If you had been one of the workers who started working at or before 9:00 am would your response be “That’s not fair?” Would you have just cause for being indignant or would you agree with the manager that he can do what he wants with his money, and you were treated fairly since you got what you agreed to be paid?
Picture a conference room with fifteen people around the conference room table. Five are the children of parents who recently died, four are the spouses of four of the children, five are the attorneys hired by each of those children, and one is the attorney representing the estate of the deceased. Assume the estate is about $100 million, with three residences, a thriving business, twenty-three income real estate properties, and a significant investment portfolio. Two of the children are involved in the business, one was overseeing the investment real estate, one is a teacher, and the last works just enough to get by because the parents had funded his lifestyle. The estate attorney reads the trust, and all five children receive an equal share of the estate. What do you think will be the response from each child and their spouses and attorneys? Will they all go home grateful for what they received? What will be the conversation around the dinner table in each child’s home that evening? Will the spouses be happy or “grousing angrily” that their family should have received more and was treated unfairly?
Let’s look at another story. “A wealthy man left on an extended trip. [Before he left] he called his servants together and delegated responsibilities. To one he gave five thousand dollars, to another two thousand, to a third one thousand, depending on their abilities. Then he left. Right off, the first servant went to work and doubled his master’s investment. The second did the same. But the man with the single thousand dug a hole and carefully buried his master’s money.
After a long absence, the master of those three servants came back and settled up with them. The one given five thousand dollars showed him how he had doubled his investment. His master commended him: ‘Good work! You did your job well. From now on be my partner.’
The servant with the two thousand showed how he also had doubled his master’s investment. His master commended him: ‘Good work! You did your job well. From now on be my partner.’
The servant given one thousand said, ‘Master, I know you have high standards and hate careless ways, that you demand the best and make no allowances for error. I was afraid I might disappoint you, so I found a good hiding place and secured your money. Here it is, safe and sound down to the last cent.’
The master was furious. ‘That’s a terrible way to live! It’s criminal to live cautiously like that! If you knew I was after the best, why did you do less than the least? The least you could have done would have been to invest the sum with the bankers, where at least I would have gotten a little interest.”[ii]
Was the master right for being upset? After all, the third servant at least saved the principal and didn’t lose any of it.
Let’s assume the servants are three children of deceased parents and we are back in that conference room. The attorney is reading the trust document and it says ____________.
If we apply the principle from the first story and all three children receive an equal share, is that fair and how are illiquid assets split? Who gets the business and who is the new CEO? Who gets the investment real estate? Since these are not liquid assets does each receive one-third of everything or does one get the business, one the investment real estate, and the third the residences and liquid investments. Why should the third child have any ownership in the business or the investment real estate since he or she doesn’t seem to understand risk-taking or how to manage and grow wealth?
Assuming equal is what happened and instead of actually receiving the money themselves, the $100 million estate either remains in trust or possibly held in a family office and each child owns one-third of the entity, what will happen to the estate? Will it grow or diminish. When the three children are around the table making decisions, who wins? Who loses?
The other scenario is the estate is divided according to what each produced. The first child receives $70 million, the second $30 million, and the third nothing. Is that fair? The second child still doubled what he or she was originally given so shouldn’t that child receive the same amount as the first child? It wasn’t his or her fault they got less to work with.
The manager in the first story applied the “equal is fair” philosophy and it created dissention as it almost always does. The master in the second story seemed to apply the “allocate according to responsibility demonstrated” philosophy. We are not given an outcome as to how that estate might have been distributed other than the third child being expelled from the family, but is this philosophy the correct one?
The answer is, when it comes to wealth and family relationships, there is no “one fits all” solution.
This is why intergenerational planning requires an immense amount of time, effort, planning, family counselling, conflict resolution, and starting right now, not waiting until it is too late to solve the inevitable problems that will arise. It is critical that this type of planning always starts with understanding who the people are and what each wants and expects or needs. Traditional estate planning using wills and trusts attempts to use legal documents to control people’s future behaviors, which is impossible. Legal documents cannot know what life will be like 10, 20, 30 or more years in the future. How many children, grandchildren, and great grandchildren will there be? How many marriages, divorces, births, deaths, special needs, addictions, business successes and business failures will occur. What changes in tax rulings and laws, or an economy that goes through another 2008 recession or a 2020 pandemic will there be?
Traditional estate planning treats a family as being static, never changing; when, in fact, it is ever changing. It would be like getting a prescription for the flu, then getting that same prescription when they discover you have a serious allergy, and again the same prescription when they diagnose cancer.
While there is no perfect solution, the one we feel offers the most flexibility and potential for success is to retain, rather than distribute, the family wealth in a structure that can adapt to constant changes, serves as a university for preparing future generations in business and financial skills, provides opportunities for involvement or risk taking, offers experience in managing and working with people with differing viewpoints and preferences, and involvement, both financially and actively, in philanthropy. It must offer each family member the ability to utilize their God-given talents, acquire the training they need, learn how to manage their time efficiently, and access to the family treasures to achieve their God-given purpose that will bring them and the family significance. As to accessing the treasures, rules and criteria must be in place for what and why the money is needed and how it can be accessed, and how it will be repaid while increasing the value of the family’s wealth to benefit the entire family.
We believe the two best solutions for doing this are a family office (we call it the Family Enterprise Holding Company) and a family foundation. While these can be actual formal entities for families that have substantial wealth and can afford to create them, the principles are equally applicable to the family that utilizes multiple trusts for the for-profit side of the family and a Donor Advised Fund (DAF) for the philanthropic side. In other words, every family, no matter their net worth and human makeup, should be treated as a thriving business that will still be in business 100 years from now.
Let me reemphasize that solving the relationship issues in the family must drive the decisions on how to allocate the financial resources. The financial decisions should NOT drive the relationship issues. Money should never be the end-all. It should be a tool that builds a stronger, unified, and purposeful family.
Revisiting my two stories, one of them could have been the right solutions, or they could have both been completely wrong, or a combination depending on a multitude of scenarios and conditions, some that could never be anticipated until they happen, and some that could absolutely have been anticipated.
A family should not attempt to do this type of planning and execute that plan by themselves. There are too many issues that require knowledge, experience, and expertise that the family does not have internally. It is truly a case of “not knowing what you do not know.” Staying with my medical analogy, think about the number of doctors and professionals a person sees when diagnosed with cancer, the numerous tests and exams they must take, and the number of professionals, with varying skills, are in the operating room. This type of planning really is that complex and life impacting.
We at Family Wealth Leadership believe the more important reason for our team to be in that conference room long before the reading of the wills and trusts, is to investigate, observe, and understand the dynamics within the family, what everyone’s expectations are, and as much as is possible to design, execute, and then administer a continuing plan that fulfills those expectations and has everyone’s alignment, commitment, and shared purpose for achieving personal and family significance.
“Friend, can’t I do what I want with my own money?” Yes, but consider the impact it will have and if that is the impact you want and is best for your family. There is nothing so unequal as the equal treatment of unequals!
[i] The Message Bible, Matthew 20:1-15
[ii] Ibid, Matthew 25:14-27
Kip Kolson is the president of Family Wealth Leadership, a multi-family office and family coaching firm, and author of You Can Have It All; Wealth, Wisdom, and Purpose—Strategies for Creating a Lasting Legacy and Strong Family. You can order your copy at Amazon. Click on the FWL website below to learn how we help families create a legacy, or email kkolson@familywealthleadership.com or call us at 949-468-2000 to arrange a call or meeting to discuss your family’s situation.
Review The Book: You Can Have It All; Wealth, Wisdom, and Purpose
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