This blog has been written by Pritika Deepak, Associate at Fasken LLP.
One of the most common instructions estate planners hear from clients is: “I want to treat all of my children equally.” While that may sound straightforward, it often warrants a deeper discussion. In estate planning, equal and equitable are not the same thing, and they can produce very different outcomes. A planner who fails to explore this distinction may inadvertently implement a distribution scheme that does not reflect the client’s true intentions.
Equal and Equitable Are Not the Same Thing
An equal distribution generally means that each beneficiary receives the same amount from an estate or trust.
An equitable distribution, by contrast, focuses on achieving a fair outcome in light of the client’s objectives and the beneficiaries’ circumstances. Depending on the situation, this may result in beneficiaries receiving different amounts or different forms of support.
Neither approach is inherently ‘better’ than the other. The key is determining which outcome the client intends.
When a client says they wish to treat their children or grandchildren equally, it is often helpful to explore questions such as:
- What outcome are you hoping to achieve?
- Is it important that each child or grandchild receive the same amount?
- Should distributions take into account differing needs, opportunities, or circumstances?
- Have any beneficiaries already received significant financial assistance during your lifetime?
The answers frequently reveal objectives that are more nuanced than a simple equal division.
The Education Trust Example
Consider a testamentary trust that sets aside $300,000 for the education of three grandchildren.
Equal Distribution
If the trust provides that each grandchild is entitled to one-third of the fund:
- Grandchild A attends medical school and incurs significant costs.
- Grandchild B completes a four-year university degree.
- Grandchild C pursues a skilled trades program with substantially lower tuition costs.
Under an equal approach, each grandchild receives the same amount. However, the educational opportunities funded by the trust may differ significantly. One grandchild could exhaust their share before completing their studies, while another may have funds remaining after completing their program.
Equitable Distribution
Alternatively, the trust could permit the trustees to fund each grandchild’s educational expenses as needed.
In that case:
- One grandchild may receive more trust funding than another.
- The focus shifts from equal dollar distributions to supporting each grandchild’s educational pursuits.
The result may not be equal, but it may better reflect the settlor’s underlying objective of helping each grandchild obtain an education, based on their respective choices and skill set.
Of course, some clients may strongly prefer that each grandchild receive an identical entitlement regardless of the educational path chosen. Neither approach is wrong. What matters is understanding which outcome the client wants.
Drafting Considerations
Once the client’s intentions have been identified, the drafting should clearly reflect them.
For example:
- If equality is the goal, the governing documents should expressly provide equal entitlements.
- If fairness and flexibility are the objective, trustees may require discretionary powers to achieve equitable outcomes.
The distinction may appear subtle in language, but it can have significant practical consequences. In some cases, planners may also wish to use a letter of wishes to provide additional guidance to trustees regarding how discretionary decisions should be made.
Conclusion
Estate planning is ultimately about translating a client’s wishes into a practical plan. One of the most important roles of an advisor is to look beyond the words a client uses and uncover the objective they are trying to achieve. Once that objective is understood, the advisor can identify the most effective planning tools and drafting strategies to bring it to life. In many cases, the greatest value we provide is not simply documenting a client’s wishes, but helping them articulate and implement those wishes in a way that produces the result they actually intend.
