Author
June 21, 2021
Ryan Faridian
Principal
Advisor
June 21, 2021

Passing On Your Wealth: The Differences Between "Fair" and "Equal"

One of the most difficult aspects of passing on your wealth to the next generation is how to do so “fairly” and “equally.” In estate planning, “equality” can be objectively and concretely calculated. “Fairness,” however, is much more subjective when it comes to generational wealth transfer. It may be fair, for example, for a financially-dependent family member to receive a larger share of your wealth, but this is certainly not equal. 

In this article, we will be addressing situations where inequality and unfairness may occur when it comes to generational wealth transfer in Canada. We’ll explore the financial tools you can use to close the gap between "fair" and "equal,” in order to prevent resentment from driving a wedge between your family members.  

When Does Inequality Occur, and What Can You Do?

Splitting Assets and Forgetting About Taxes

When you’re splitting taxable assets among your family members, it’s important to consider how they’ll be impacted by taxes. While you may think that you’re splitting your assets equally at first glance, tax implications can significantly reduce what a family member ultimately receives. 

For example, consider the case where you hold both Canadian and American assets of equal value, and decide to split them among your children. You decide to pass your Canadian assets to one child, and your American assets to another child. While this seems like an equal split on the surface, it’s important to remember that these assets will be taxed differently upon your death, meaning one child will receive significantly less from you after taxes. This is especially true for high net worth individuals; for these individuals, the U.S. Estate Tax can significantly reduce the value of their estate. 

What Can You Do?

A misunderstanding of taxes can cause a huge headache when it comes to generational wealth transfer.


To prevent situations like this, you’ll want to consult with a wealth preservation expert who understands both domestic and foreign estate tax policies. When it comes to the U.S. specifically, your advisor may recommend that you invest in life insurance, in order to cover your U.S. estate Taxes. They may recommend that you sell your American assets prior to death; in that case, you’ll be advised on how to time this strategy appropriately, in order to avoid creating a Canadian tax liability. Your advisor may simply tell you to reduce the value of your estate to below the threshold where federal estate taxes apply. Each situation will be unique, so it’s imperative that you work with an advisor who can take all these situations into account and apply them as appropriate. 

Splitting a Business Equally, to the Detriment of the Business

Around 60% of business owners plan to split their business equally among their children, but this isn’t always a sound decision to make. It’s likely that not all your children are taking part in the family business equally; consider cases where one child takes over all operations for a business, while the other goes off to have a career of their own. In this case, splitting your business equally among both children makes little business sense, and can set the family business up for failure. 

What Can You Do?

In cases where splitting a family business equally will be to the detriment of the business, consider leaving non-business assets to children who have a career outside of the family business as a way to split your wealth fairly. This can be anything from naming them the beneficiary of an RRSP, to passing on a vacation home, or you may even consider leaving them with a lifetime gift over an inheritance. Lifetime gifts can include paying for a child’s down payment for a home, or funds to pay for a child’s continuing education.

Another solution is to use life insurance as a way to pass on wealth to a child that is not involved in the family business. This can be used to supplement any non-business assets that you decide to pass on. 

Children With Varying Financial Circumstances

 Fair and equal generational wealth transfer can be difficult when one child needs more help than the others.


A common issue that many individuals grapple with is when their children or other family members are living with wildly varying financial circumstances. One child may be in a high-paying, steady job, while another just got out of school and has yet to purchase a home. It may even be the case that one family member is a disabled dependent and needs more financial assistance than your other family members. In these situations, it may be fair for one family member to receive more wealth than another; unfortunately, doing so may lead to resentment among your family.

What Can You Do?

In complicated situations like this, communication is key. In Canada, only about one-third of children know that they are included in their parents’ wills, and 17% have no idea whether they’re included in their parent’s wills or not at all. This lack of communication means that, upon your death, your children will have very little idea of what to expect from you, making it incredibly difficult to facilitate a successful generational wealth transfer.

When it comes to passing on your wealth fairly, your children need to understand the context behind your choices and the process behind your decision-making. While having a sound financial strategy in place will help to facilitate estate equalization, communication is needed to stamp out resentment before it brews among your family members. If open communication between you and your family members isn’t possible, your reasons behind how you decide to split your wealth should at least be thoroughly documented

“Fair” and “Equal” Isn’t Always Possible, but It Doesn’t Always Lead to Resentment

When it comes to passing down your wealth, doing so “fairly” and “equally” isn’t always possible. However, there are sound, financial strategies an advisor can help you put in place in order to bridge the gap between “fair” and “equal.” When splitting your assets, make sure to work with an advisor who understands tax laws; they should be able to implement effective tax solutions to ensure that your estate is split as equally as possible. 

Making use of non-business assets can also soften the blow when it comes to an unequal split of the family business. Strategies like purchasing life insurance, setting up a trust, and giving lifetime gifts can all factor into overall equalization.

None of these strategies will prevent resentment, however, without clear communication between yourself and your family members. Your family members need to understand how and why your estate is being split in a certain manner, and your reasoning should, at the very least, be documented.

Passing your wealth down to subsequent generations, can be an overwhelming task; you’ll want an advisor at your side who can create a financial strategy that will ensure that your wealth is successfully passed onto future generations. If you want to work with an advisor who can create a plan that is well-researched and tailored to you, contact Global Solutions West, a think-tank of tax, law, finance, and insurance innovators that can provide you and your family with the perfect wealth preservation strategies. 

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