My husband and I have $13.5 million and 3 kids, but one is an addict. How do we fairly divide our estate?

By Quentin Fottrell

 'We are the first generation on either side of our families to experience this level of success' 

 <strong>"</strong>My husband and I are looking to create a trust with an equitable division of assets upon our deaths." (Photo subjects are models.) 

 Dear Quentin, 

 My husband and I are in our early 50s. We own several small businesses and are trying to determine how to set up a trust that will be equitable for our three adult children. 

 Oldest son, 33: He is an addict who is currently employed and living in a motel about 100 miles away with his second wife. They each have two children, all with different ex-partners, and they have no contact with any of the kids. We have paid for multiple rehabs and sober-living houses, all of which he has left early. We have also given him vehicles, which he no longer has, and purchased a home for him and his first wife, which we later resold. Typical addict-and-enabler behavior. For the past three years, we have refused to financially support him. These circumstances are disappointing to us, but he is an adult and makes his own choices. We are on good terms, speak often and love him just the same. 

 Daughter, 26: She lives independently, about 200 miles away in a house we purchased for her. Her vehicle is paid for and she pays her own bills. We have no idea what her paycheck or expenses look like. We see her weekly and speak nearly every day. She has a bachelor's degree. 

 'We don't want to shortchange our daughter just because the focus seems to be on the boys.' 

 Youngest son, 23: He has worked for our larger company (20 employees) since high school. He has done surprisingly well, and both our manager and customers are impressed with him. I have insisted on two layers of separation between us - management and HR. We also bought him a house and a vehicle. I don't know his bills either. I see him nearly every day. He has no education beyond high school. 

 My husband and I are looking to create a trust with an equitable division of assets upon our deaths. Our home is worth just over $1 million. Our main business is valued at about $8 million, with approximately $2 million in value from the others. We also have about $2.5 million in investment accounts. 

 Our main sticking points are these: 

 -- The youngest wants to buy the company he works for within the next 10 years. This is, of course, acceptable, as the other two are not interested. However, it does give him future earning potential beyond what the others will most likely achieve. 

 -- The oldest has had considerably more money spent on his sobriety and on our grandchildren. What is a fair way to determine his share? Should we leave the kids part of his portion? Thankfully, we are involved in their lives due to the kindness of their mothers. 

 To be clear, we don't want to shortchange our daughter just because the focus seems to be on the boys. We also don't want to punish the youngest for having the ambition and desire to run the company. 

 One more thing to add: We helped raise a young man whom I call my son. Vacations, holidays, weekly contact - we have always been close. He has a degree and a professional license in a medical field and lives in an area with a high cost of living. I would like to include him as well. 

 We are the first generation on either side of our families to experience this level of success, and we are unsure of our next steps. 

 The Parents 

 You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter. 

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 Your biggest challenge: Transferring the business to your youngest son, while trying to make sure that your other children receive their fair share of your estate. 

 Dear Parents, 

 The pieces of your financial puzzle appear complicated, but the completed puzzle is less so. 

 You have, whether you realize it or not, figured out how you want to divide your estate. Your destination is fairness and equality. Lead with both your head and your heart, as you have done. Keep the nitty-gritty of your plans to your financial manager and attorney - but explain the spirit of the plans to your kids. You can also set up 529 plans or trusts for your grandchildren. 

 Fairness in estate planning doesn't always mean identical outcomes. In this case, you require thoughtful planning to protect your most vulnerable heir, your eldest son, respect the effort and responsibility of your youngest son, and preserve family harmony, ensuring that your daughter and de facto "son" are also given their rightful place in your final wishes. 

 The goal is to leave your three children equal(ish) shares, but you don't wish to leave your son, who is an addict, a lump sum. That would be unwise and probably lead to disaster both in terms of his financial mishandling of those funds (based on prior experience) and the temptations it would put in his way (in terms of his addiction and other people he may have in his life). 

 As for the young person in your life who you consider a de facto child: based on that relationship, either they receive 25%, meaning an equal amount to your three biological children, or you take a lesser percentage out of your estate to show your love and appreciation for him (perhaps 10%-20%). Ideally, choose an independent third party as trustee. 

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 Business transfers 

 You've given your children a lot during your lifetime: love, moral support, housing, education and business opportunities. It's fantastic that your youngest son wants to carry on the family business. If he wants to buy you out - and this makes up the lion's share of your estate - anything not regarded as fair market value would be seen as a gift by the IRS. 

 In reality, many transfers are done through installment sales, family limited partnerships, grantor retained trusts and valuation discounts. These can dramatically reduce tax impact if structured correctly, and done so with the help of a tax adviser. Such transfers are often yearslong processes to minimize tax consequences and help their heir adjust to their new role. 

 This will be your biggest challenge: transferring the business to your youngest son while ensuring that your other children receive their fair share of your estate. That could mean giving them a larger share of (or all) your real estate, stocks and retirement accounts. There are also estate attorneys who specialize in family-business succession planning. 

 As the Weissler Law Group in San Diego, Calif. says, "This isn't just a financial puzzle; it's an emotional one. Unaddressed, it can lead to sibling resentment and fractured relationships, paying more in taxes than you need to pay, disputes that deplete the estate's value [and] the potential collapse of the very business you worked so hard to build." 

 "Achieving fairness doesn't always mean equal in monetary terms, but rather equal value or opportunity in a way that respects everyone's contributions," it adds. "The first critical step is an independent, professional valuation of the business. This provides an objective baseline for all discussions. Without an accurate valuation, any attempts at fairness are speculative." 

 The firm also suggests giving other assets of equivalent value, including real estate, investment portfolios, life-insurance proceeds and other liquid assets. "A life-insurance policy can be specifically purchased to provide a cash payout to the non-business child, effectively equalizing their inheritance without burdening the business or the child taking it over," it says. 

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 Discretionary trust 

 You could set up a discretionary trust, or a substance-abuse protective trust with a sum of money agreed upon by you and your husband that requires your son to attend Alcoholics Anonymous or Narcotics Anonymous meetings and/or provide evidence of their sobriety. The distributions could be limited to expenses for treatment, counseling, education and/or food. 

 It's protective, but that's the point. It's your money and you can choose to distribute it in a way that gives you peace of mind and that you believe is fair. It also helps keep temptation to use the money for other reasons, and encourages (in theory) good behavior. The remainder can be given to his children when they reach a certain age. 

 There's no right or wrong way to distribute your estate, particularly when you are dealing with a child who has substance-misuse issues. This research, published in the European Journal of Ageing, looked at 55 cases involving heirs, donors and professionals, attempting to understand people's motivations and mistakes when dividing their estates. 

 The researchers identified four reasons for leaving people an inheritance: altruism driven by family solidarity (it feels good to be nice); equity to maintain family unity; egoism; and reciprocity ("I give to you if you give to me"). You appear to have maintained your fairness and objectivity, and most of all your love and support for your children, regardless of their situations. 

 It already sounds like you're planning early, and with great care. 

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 The Substance Abuse and Mental Health Services Administration aims to help families. You can call SAMHSA's National Helpline at 1-800-662-HELP (4357) or TTY: 1-800-487-4889, or text your zip code to 435748 (HELP4U), or use SAMHSA's Behavioral Health Treatment Services Locator to get help. Read more here. 

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