Determining net worth and fairly allocating assets to children can be a complex and emotionally charged process. When some assets are wholly owned businesses and valuable collectibles, this process becomes even more difficult.
It can get even more complicated when not all children are involved in the business and do not understand how the business works.
The easiest way to handle this is to take an inventory of all assets and allocate ownership equally to each child or allocate the business to the children who work for it and other items to the children who don’t work for the business.
While this may be the easiest way, it may not be a fair allocation of assets. Allocating your assets in this manner can cause problems for the next generation and may even cause families to fight over tangible and intangible assets.
To avoid this problem, it is important to have a valuation done on the business and an appraisal done on any collectibles. Valuing assets accurately can be challenging, and discrepancies in valuation can lead to disputes among beneficiaries. It’s important to keep detailed notes during this process so there is no confusion on how the valuation and appraisal were determined.
Once the valuation and appraisals are done, you can create an inventory of all assets and determine your net worth. Once all assets have a value assigned, it will be easier to fairly allocate to each child.
For example, let’s say your net worth is six million dollars, with your business accounting for two million dollars. If you wish to allocate your assets between two children, you could allocate the business plus one million dollars to the child involved in the business. The child not involved in the business would get the remaining three million of your non-business assets.
While this method may not completely solve all potential issues, it can help reduce conflict among family members and help future generations understand how assets were allocated fairly. By having concrete valuations and appraisals, children can gain insight into the values of the assets and the reasoning behind the allocation decisions.
Keep the following areas in mind while you are determining how to allocate your assets. They are all things to be aware of to avoid future family conflicts.
Determining net worth and fairly allocating assets to your children requires careful planning, clear communication, and sensitivity to family dynamics. Taking the time and effort to determine the true value of assets can have long-term benefits in preserving family harmony and financial stability for future generations.
Seeking professional advice and involving family members in the process can help create a more transparent and equitable allocation strategy.