How Can I Pass on the Family Business to One Child and Still Be Fair?
The strengths, skills and persistence that build a successful business are also skills that help prepare that business for a successful transition to the next generation. Unfortunately, many business owners do not see the importance of using those same skills to prepare for the transition. They assume the process, and the result they want, will occur even if they do not specifically work for it.
Just like running a business, obtaining the result you want requires applying the appropriate strategy. This means the proper strategy should address: 1) which children will continue on with the business (and in what capacity), 2) how the parent’s assets (including those which are not part of the business) are to be distributed, and 3) how these goals can be meshed to create successful results
Take the example of a “land rich but cash poor” farm where one child wants to continue the farm, but the other children have no interest. Will the child who wants to farm be required to work with children who just want the farm to be sold? Will the farm have to be sold so that each child receives an equal share? If the farm is not sold, must the other children be left out in order for the farm to continue?
But what happens if your spouse remarries? Will your estate be used for your spouse’s benefit or will it also be used for the benefit of the new spouse? Under Idaho’s community property laws, you have the right to decide how your portion of that community property will be used, and your spouse has the right to decide for his or her portion. But if you leave everything to your spouse, and he/she remarries, whose money is being used? Is your share of the estate being used to benefit the new spouse? Will this new spouse care about acting prudently to preserve assets for your children?
None of us can predict the future. However, you are the one best qualified to determine what the risks are to your estate.
Understandably, many family business owners see this as an “either/or” conundrum. They can ensure the farm continues, but only by depriving the other children. Conversely, they can ensure each child receives an equal share, but only by selling off the assets. They fear anything in between will force children with completely different interests and motives to work together.
In reality, there are several other options to consider; and there are even ways to pass on cash or other assets to some children and still pass on the family business to the child or children who are interested. Come to a free presentation and find out how a few basic steps can make all the difference for a successful estate plan.
Steve Wright is a local attorney who provides free, no obligation estate planning and elder law presentations. The option to join by Zoom is available for all our presentations