The issue of fairness is at the heart of problems we encounter daily working with business owners and their families on their estate and succession planning. “That’s not fair! My brother expects me to do all the work while he gets equal pay”; “My parents expect me to run the business for the sake of the whole family – this is a father-son business, but my siblings think it is a family business”; “My father won’t retire – I’m 52 – when do I get my chance?”; “My children want to push me out – I built the business, not them”; “Why won’t my son run the business the way I did?”; “Why can’t my children appreciate what I’ve done for them?”; “Why won’t my children work as hard as I did?”
Sound familiar? Let’s focus on finding solutions to three common problems.
Equal Is Not Fair! Like many parents you may be concerned that you don’t appear to be playing favorites or treating any of your children unfairly. How often have you compared gifts at Christmas, wondering if any of your children will feel slighted? This often leads to estate distribution plans treating everyone equally, which can be extremely unfair. For instance, we met with one business owner who had set up his estate plan to give his three children equal shares of his business, which is a C-corporation. Two of his children were active in the business and his daughter was not. Therefore, we told him, “this is what is going to happen a few months after you are gone. Your daughter will show up at the office and the conversation with her brothers will sound like this:
“I own a third of the stock – when do I get some money?”
“You don’t.”
“But you’re getting paid.”
“That’s because we work in the business.”
“But my stock is worth millions of dollars.”
“We don’t pay dividends.”
“So when do I receive any money?”
“When we sell the store.”
“When are you selling?”
“We aren’t!”
“But that’s not fair!”
Key to solving this problem is to design your plan so everyone gets ‘meaningful’ assets, which is usually defined as ‘income-producing assets.’ Giving stock to a child who is not active in the business, usually results in some family member feeling that was not fair. Either the in-active child feels they are deserving of more, or the children working in the business feel they are carrying the burden of the whole family on their shoulders.
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