An estate plan is a set of powerful tools that protect your wealth and furnish…
A family business is a real stumbling block for many folks looking to prepare a comprehensive estate plan. After all, avoiding conflict in the family is a central concern of many planners and the presence of a family business complicates attaining this outcome. The reason? Well, there isn’t just one but the fact that in this context “fairness” and “equality” don’t always mean the same thing is a major player.
Those that run family businesses often have a majority of their wealth tied up in the enterprise. This means that when the time comes to pass assets on to children or loved ones, shares in the business become a central concern. If everyone participated equally in the business’s continued growth, this would be a simple (or maybe a simpler) matter but rarely is this the case. While some children might remain involved, others will opt for a different path. This should have no bearing on their inheritance, of course, though it may mean an equal division of assets is not necessarily the fairest distribution.
This is where speaking with a wealth planning attorney can be of enormous benefit. One thing an experienced attorney assists with is weighing value against control. Ensuring your assets are evenly distributed is easy; however, an even distribution might tilt the balance of control in ways that are perceived as unfair. If children inherit equal shares in the family business, for instance, despite unequal involvement, the value of each respective inheritance might be the same and yet those that have invested more in the enterprise might feel slighted.
One solution is to pass on a small majority (say, 51%) to the child that has built their life around the business; another might be to pass on voting and non-voting shares in consideration of each child’s involvement; yet another might be to divide assets unrelated to the family business in a creative way that accounts each child’s individual goals and interests. Naturally, the approach best-suited to your family is a subjective matter that requires both a thoughtful conversation with your loved ones and with your trusted advisors.
The Importance of a Succession Plan
Making time to talk through your estate planning goals with your children and loved ones as well as an experienced attorney is only the beginning of the process. Once you have solicited feedback from all concerned parties and established your desired outcomes, the real work of putting ink on paper begins.
A succession plan is one essential strategy that is often overlooked in the estate planning process. While unpacking the details of what such a plan entails goes beyond the scope of this article, it is a topic that all members of a family business should address well before the reins are passed from one generation to the next.
Having said this, it is important that you do not get tangled up in trying to make sure you’ve got all the right estate planning documents in place. Your attorney will take care of that. All you need to do is gain clarity around what you want your plan to achieve. The paper pushers will take care of the rest allowing you to relax knowing that whatever the avenue, your assets will end up properly and fairly distributed.
For more information, view our recent YouTube video on this topic, or call our offices to schedule a consultation.