Fair is Not Always Equal in the Family Businesse

Please don’t divide business ownership equally among your children. We did that when they were children, divided up the toys and the pie or whatever it was we were sharing equally, to reinforce the message that we don’t favor or love one child over another.

You simply can’t apply this logic to business transition. The prevailing wisdom is that transferring all of a business to the business-active child (BAC) and making an equitable distribution of other family assets to inactive children (and perhaps to the BAC as well) is the fairest plan of all.

It’s also very important that each member of the family understand why this is fair. They must understand that if the BAC is wildly successful in growing the business over time, it was in fact done by her own efforts and that she was not given “more” than the other siblings at the onset. There may eventually be dramatic income or lifestyle differences between siblings as a result of giving the BAC the business asset. What will you do as a family when that occurs, when the BAC is driving a much more expensive car and sending their children to better schools than her siblings? Will the siblings feel slighted?

This is why family conversations about estate planning and wealth transfer are absolutely critical. And that conversation should be recorded and written down, so that ten years later, the siblings who did not get the business asset will remember a) what it was worth when their sibling received it and b) that they agreed that the BAC should get the business asset in the first place.

Fairness is a completely subjective notion, which is why you must present your idea of what is fair to each member of the family to make sure that all agree, from where they sit, that your solution is indeed, fair. Not necessarily equal, but fair.

For more information on this topic, read John Brown’s article: https://www.exitplanningforadvisors.com/ingredientthree

Tagged: communication, conflict, estate planning, fair, family, family business, family meetings, sibling rivalry, wealth transfer