(MONEY Magazine) – In her 12 years as a paralegal, Marlene Foth of Concord Township, Ohio had heard more than her fair share of horror stories featuring families devastated by inadequate estate planning. "You name it, I've seen it," says 51-year-old Foth. "Children who have unintentionally been poorly provided for, siblings who became estranged over inheritances. People think that they are doing the right thing, and sometimes they just aren't. And I was determined that it would not happen to our family."

So after her husband Rick, 57, retired in 2002, she made a resolution to take care of their future. When the Foths first sat down with Cleveland attorney Maria Quinn, they were wrestling with how to divide their $1.5 million estate among their three children: Christine, 32, a benefits manager; Amber, 25, an elementary school art teacher; and Brandon, 23, a bond trader with big plans for a Wall Street career. For one thing, the couple were convinced that the children had vastly different earnings potential. Should they split the pot equally or should they leave more to their two daughters? What was the right thing to do? What would be fair?

Equal vs. equitable? What is fair? It's a question that has stumped families for generations. Do you treat your children equally no matter what, or do you take into account that one child is a struggling artist and another an investment banker? What about the hard-luck child? Or the proverbial black sheep?

"There is no right answer," insists Russell Love, an Atlanta tax and estate attorney. "There is absolutely no correct solution on equal vs. equitable. It's all inside of you, and you have got to feel comfortable with your decision."

Developing an estate plan that's comfortable for you and fair to your heirs requires more than spreadsheets. Here's how three families did it.

Meeting special needs

For Jack and Carolyn Howard of Lexington, Mass., one realization drives their estate planning: Their 30-year-old daughter Courtenay's ability to support herself is precarious and is likely to remain so. She suffers from severe learning disabilities and lupus, a serious and chronic autoimmune disease.

"She will probably never be able to balance a checkbook," says Carolyn, 56, matter-of-factly.

After years of struggle, Courtenay graduated from a community college in 1998 and found a job in the medical records department of a large clinic. "That was climbing Mount Everest for her," says Carolyn. Shortly thereafter, however, Courtenay became gravely ill with lupus. Although she is currently in remission, some 30% to 40% of lupus patients suffer a recurrence, a statistic that haunts her mother. "Now on top of this mental disability, we have this life-threatening physical disability," sighs Carolyn, who owns a financial planning company. "So I started thinking that I have got to get a grip on how to take care of her financially. I can't play Russian roulette with her life."

The Howards' first move was a misstep. Carolyn and Jack, now 66 and a retired chemical engineering professor at the Massachusetts Institute of Technology, met with an attorney and set up an irrevocable life insurance trust with Courtenay as a trustee and beneficiary.

Then, in 2002, Carolyn attended a seminar at which Boston-area attorney Leslie Madge spoke about estate planning for children with special needs. Madge explained that naming a disabled person as a trustee puts his or her government assistance in jeopardy. Because of her difficulty in finding and keeping a job, Courtenay receives $515 a month in Social Security Disability Income (SSDI) and $183 a month in Supplemental Security Income (SSI).

The Howards immediately made an appointment with Madge. With her guidance they set up a supplemental-needs (also known as special-needs) trust for Courtenay funded by a $1 million life insurance policy. The trustee--her brother Jonathan, 28--can use the funds to pay expenses not covered by SSDI or SSI benefits, such as extra medical or dental care, transportation or housing.

Jonathan, who is starting a career as a director and screenwriter in Los Angeles, stands to inherit much of the couple's other assets, which include substantial real estate holdings, life insurance policies, retirement assets and shares in Nano-C, a technology company that his father founded two years ago. The Howards are also in the process of establishing a $2 million second-to-die life insurance policy; 25% of the proceeds will go to Courtenay's trust and 75% to Jonathan.

"The Howards are trying to walk this fine line between treating the children equally and still providing heavily for Courtenay, realizing that her disability puts her at a far greater disadvantage than her brother," says Madge. "They recognize that resources continue to need to be diverted for the benefit of the disabled child. This can cause big problems if the family is not ready to accept that need."

The Howards clearly are ready. "The last thing that I want is for Courtenay to be a financial burden on Jonathan or any other family members," says Carolyn. "We're not eternal, so we need to take care of things while we are here."

For his part, Jonathan feels that the fact that his parents have provided so well for Courtenay frees him to be the one thing he wants to be--her brother. "For me," he says, "emotional and physical companionship for my sister has always been the biggest issue. I just want to be able to make her feel included."

Share and share alike

"The special-needs cases are more tragic in some ways, but they can be simpler conceptually," observes Harold Evensky, a Coral Gables, Fla. financial planner. "Because it's more black and white. But the ones that are gray are where you have disparate incomes."

Paul Beckham, 60, and Cheryl, 59, his wife of 40 years, feel strongly that their estate should be divided equally, despite the differences in their children's financial situations. Beckham, a former senior financial officer of Turner Broadcasting, is now a partner in Hope Beckham, a marketing firm in Atlanta. The Beckhams have two children--Debbie, 38, and Mike, 37, who is a vice president at Turner Broadcasting. Even though Mike has a greater net worth than Debbie does, the Beckhams plan to split their multimillion-dollar estate--which includes real estate, life insurance policies and revocable trusts--equally between the siblings.

"Both of my children have money," Paul says. "But my son does very, very well. My daughter is married to a super guy, but he's not producing the same kind of income. He is in the commercial photography development business. Is there a disparity between the incomes of my two children? The answer is yes. But both of them are fine now, and they will be fine when Cheryl and I are gone. In fact, they will be finer. I see no reason to reduce Mike's share, just because he has done better financially, in order to increase the amount that will go to my daughter."

Plus, Paul says, "I want to make sure that there is something there for the grandbabies." (Mike has four children and Debbie has one.) Both Paul and Cheryl give annual gifts of $10,000 apiece directly to each of their five grandchildren. The kids will be able to draw on the funds, which are in brokerage accounts in their names, when they reach college age. The couple have also set up life insurance policies with their grandchildren as the beneficiaries.

"Generally, what I see is that during their lifetime, parents are more willing to help--especially through the grandchildren," observes Waltham, Mass. financial planner Christiane Delessert. "They tend to feel that that's their prerogative. But when it comes to their death, they are not willing to send the message that one child meant more to them than the other. They start with the premise that all children should be treated equally at death."

Fair but not equal

There is, however, another school of thought. "There are a whole bunch of ways to approach this," says Ross Levin, an Edina, Minn.-based financial planner. "But the worst way is to say, 'Okay, I've got these two kids, and I'm automatically going to split things evenly because that's what most people do.'"

"People don't understand that they have choices," agrees lawyer Quinn, who is handling Rick and Marcy Foth's estate. "They can do percentages. It doesn't have to be one size fits all. And they are not going to go to hell in a handbasket if they treat their children a little bit differently."

And that's just what the Foths have decided to do. "While we love all three children equally, we will be leaving different amounts to them," says Rick. "My children have what we feel to be different earnings potential. And they've had different educations, so we need to tailor our plan to accommodate all of that." Amber and Christine will each get 40% and Brandon 20%. "Those percentages reflect where we think all three will be when they are, say, my age," their dad says. He explains that he paid considerably more for Brandon's tuition at Carnegie Mellon University, some $35,000 a year, than he did for Christine's and Amber's. "Brandon rubbed elbows with people who have money," Rick says. "And he has a lot of ambition. Where Amber, my younger daughter, who teaches elementary school, might see butterflies, he sees dollar signs. Amber's husband is in law enforcement--not that she couldn't become a principal and he couldn't become a sheriff. But chances are that they are going to be in the middle-income bracket at best."

"It was a matter of telling Marcy and Rick that there was nothing wrong with looking at it this way," Quinn says. "And that it doesn't have to be an indication that they love their son any less. I said, 'Talk to Brandon. See how he feels.'"

In the end, it was Brandon who first brought up the subject with his father. "He did it on his own, which kind of caught me off guard," says Rick. "He knows that if things go the way that we all think that they might, his life will be better financially than his sisters'. Because of that, my son said he doesn't think he should get as much as they do."

When in doubt, talk

"I have had situations where the child who has done well has come to us and said, 'Look, I don't need the money. Why don't you do what you can to encourage my parents to take care of my sister,'" says Kevin Flatley, director of estate planning for Citizen's Bank in Boston. "But there has to be communication. If that same person was left out without any dialogue or input, that would be very destructive."

Planners often stumble upon deep-seated family tensions that erupt during discussions about inheritance and sometimes lead to ugly litigation. Some advisers regularly solicit the help of psychologists and social workers to meet with clients and conduct family meetings. Charles Haines, who owns a financial planning company in Birmingham, went so far as to bring in a clinical social worker as a partner. "I kept stepping on land mines because money touches on so many personal areas," Haines explains. "I was getting into areas for which I was just not trained. I needed someone who could facilitate discussion and hear what everyone had to say. The ultimate solution is communication."

One New England woman drew her children into the decision-making process. She asked her financial adviser, Christiane Delessert, to meet with her children and see if they could come up with a solution that would help a troubled daughter but not alienate her sisters. "The mother did not want to be part of the meeting," Delessert recalls. "What I thought was very, very astute on her part was that she wanted to help her child who was having trouble, but she wanted the other siblings to buy into it." The siblings' decision: Their sister could be given up to $250,000 during their mother's lifetime; beyond that her share of the mother's estate (which was to be divided equally) would be reduced.

In the end, estate planning is about peace of mind. Lawyer Russell Love recalls elderly parents who were agonizing over their estate plans. They were worried about their recently divorced 50-year-old daughter, who had always been a stay-at-home mom and was facing tough times. "Their other child is a physician who has more money than mom and dad do, so it was not a matter of need," Love explains. "They wanted to change their estate to provide the daughter a bigger share of the assets. Once I told them it was okay to do this--in a sense I gave them permission--we put language in the document saying, 'Son, don't think that because we're not treating you equally that we love you any less.' And that gave them comfort.

"I asked them, 'Are you going to sleep better knowing that, to the extent that it's possible, you've ensured that your daughter is not going to ever be in a position of hardship?' And the woman said, 'I can die in peace.' What else can you ask for? That is your ultimate goal."