You are the executor of an estate and have several valuable assets (e.g. real estate holdings or an artwork collection) to sell or divide up for the benefit of the children of the deceased. If the assets are put up for sale they will yield pennies on the dollar. The deceased has not provided any direction as to who should get what assets (except for personal items such as jewellery and chinaware). The children cannot agree amongst themselves as to who should get what.
You have met with the lawyer and the accountant for the estate in order to understand what your legal and financial responsibilities are. There are sufficient liquid assets in the estate to fund all the estate obligations such as funeral expenses, taxes, liabilities and specific bequests so those items are covered off.
You take an inventory of the financially valuable assets and obtain an independent professional valuation in order to get a sense of what they are worth. There is significant value so you don’t want to be putting the assets up for sale for pennies on the dollar. The only viable option that is left is to divide the assets among the children as best you can. How can you do this in a way that is fair and equitable?
There is no one-size-fits-all answer to that question as every situation has its unique characteristics. However, there is one method that I have seen used quite successfully over the years. It is a lot selection process that works as follows.
Let’s say there are two children, X and Y. X divides the assets into two separate lots (A and B) and Y gets to choose from the two lots. The reason this process can work well is that X has a built-in incentive to divide the lots as equally as possible knowing that Y gets to choose first.
The process can also work if there are more than two children. For example, with three children (X, Y and Z), X divides the assets into three lots (A, B and C). Y and Z then flip a coin to see who picks first. Y wins the coin toss so gets to choose between Lots A, B and C. Z then picks second and X picks third (as the person dividing the assets into lots always picks last).
It should be noted that this process can work equally well in dividing the assets while the parent is still alive. For example, an elderly parent looking to move into a retirement home can use this process to divide valuable artwork in the home before moving out.
Even in the most acrimonious of family situations, I have seen this process work remarkably well because of the justice inherent in the process. However, it need not be an acrimonious circumstance for this to work either. In the closest of families, there is often a lot of emotion at stake and no one wants to feel hard done by. While no process is perfect in resolving these matters, this one is as close to perfection as I have seen.
Ron Prehogan is a Partner with the law firm of BrazeauSeller.LLP and President of Equitas Consultants Inc., a consulting business that provides business and wealth transition planning and implementation services for businesses and families using a unique combination of facilitation and transactions expertise. Ron can be reached at 613-569-7001 ext. 257 or at email@example.com.