The Summit Series: Fairness in Estate Distribution

Equal or equitable? What constitutes a fair transition to the next generation? As a parent, an entrepreneur and an employer, you know the importance of leading fairly. Planning the transfer of ownership of your family enterprise to your children often revolves around the question of fairness.

What should I keep in mind if all my children want to join the business? What if none of them do? And what happens if only one is interested, how can I be fair to the others? How can we preserve our family dynamic and prevent future conflict?

All situations are unique. But one thing that’s true across the board is that a deep understanding of family dynamics, careful planning and varied technical knowledge can lead to the creation of a solution that is right for you. Our partners have helped thousands of business owners navigate their personal and professional journeys with honesty and dedication, no matter the situation.

The Challenge

This client owned a business which they had planned to leave to their three children. When offered the opportunity to take over the family enterprise, all three children jumped at the chance, initially. While the oldest two enjoyed the work and could see themselves continuing in their parents’ footsteps, the youngest did not. She decided to pursue another avenue instead and, with the support and encouragement of her family, became a doctor.

While immensely proud of their youngest daughter’s choice to pursue her true passion and the other two’s decision to join the family business, our clients still wanted to ensure an equal distribution of their estate between the three.

While proud of their daughter’s choice to pursue her true passion and the other two’s decision to join the family business, our client wanted to ensure an equal distribution of their estate between the three.

The first problem that arose was the concern that by equally dividing the company between the three, they might in fact create inequality in the family dynamics – as the youngest daughter would be a non-working shareholder in the company – potentially reaping benefits of the company without directly contributing once her siblings took over, while also generating income of her own as a doctor. The parents wanted to ensure fairness, while also wishing to set each child up for success.

This situation is one we see often. While the specifics (age, career choice or number of children, etc.) may change, the desire to treat each child fairly is a common one for almost any family.

If children do not all express the desire to take on the business, how should the business and financial assets be passed on to the next generation when the time comes? How can a family enterprise tackle the question of fairness between children during a business transition?

The Solution

In this instance, we had many discussions with our clients and outlined a plan that would work best for their unique situation. Our clients decided that being equitable was more important than equal. They chose to leave the company equally to two oldest children and compensated the youngest with liquid portfolio assets: same value, different assets.

This solution had many upsides for the family. First, it avoided the potential issue of having a non-working sibling shareholder, thus also avoiding the subsequent family conflicts that could potentially arise between managers of the business and the non-working owner. Second, by deciding to leave portfolio assets to the youngest, they were able to demonstrate their support of their daughter`s career choice. Lastly, if the two oldest children grew the business ahead of the portfolio, they alone would be reaping the benefits of their own decisions and accomplishments.

What we assisted with

Mindy Mayman, partner, knows that each family she works with at Richter Family Office is unique. Understanding the history of the family, the context of their situation, their objectives and their goals is key to helping them make the best choice for them. Having the family discuss the possible solutions openly and acknowledge that each family member’s role is important, their concerns are valid, and the challenges they may face are different, is the best way to create a tailor-made solution to fit all their needs. Mindy’s role in this scenario was to advise, along with other Richter professionals, on the different aspects of estate planning and family governance.

While these clients had enough portfolio assets to execute this particular solution, there are many other ways to achieve a successful business transition and estate plan; structuring life insurance policies being one, amongst other options that families should discuss with their advisors. Regardless of the situation, Richter Family Office commits to assisting families with a depth and breadth of expertise that allows for a fully integrated picture of their financial situation. We navigate open and honest conversations among family members and build trusting relationships with our clients in order to bring forth the best solution for any situation.

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