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All’s (Not) Fair With Passing Down the Family Business

In the HBO series “Succession,” an extremely wealthy and powerful family works through handing down a corporation to the next generation. Every awful emotion and motivation come into play as siblings wrestle their parents for money, power and influence. The shows’ creators were inspired by great media families and their dramas—the Murdochs (Fox) and the Redstones (Viacom), for example—and what is abundantly clear is that while business successions are often messy, family-business successions have the potential to be a real-life horror story.

Let’s assume that you don’t aspire to emulate a cable-television drama as you plan the next steps for your family business. Even the most harmonious family will endure some stresses as you strive to pass on a business in an equitable manner. Interpersonal dynamics within the family become at least as important as the business dynamics. Take, for instance, a family business in which not all the next generation is involved—should each child get an equal share, whether they work there or not? No matter what the founder decides, how do you avoid leaving someone feeling underappreciated?

This conundrum became deeply personal for one of our clients—let’s call him Gerald. Two of Gerald’s children worked in his business and two did not, and he struggled with the idea of creating an equitable legacy. He wanted to make sure that the children who worked on the business were able to reap the value of their labor, but also wanted to create a substantive legacy for the children who had other pursuits. There are many avenues for passing on a family business, including trusts, stock buyouts funded by life insurance, and more. A skilled financial advisor, in consultation with a capable estate attorney, should be able to help a business owner decide which avenue is best suited to his or her family and financial needs.

For Gerald, we recommended the best route would be to split the business into two entities: an operating company and a property company, both of approximately equal value. The two children who were involved in the business would inherit the operating company, and the two children who were not involved would inherit the property. This way, the working children would get to retain the additional value they created by building the company, while the other two could build wealth through their chosen endeavors. They could even sell the property back to their siblings if they chose.

In these situations, the most important factor is to communicate clearly with the next generation so they can accept how and why a business is being passed down, and what is expected of them in the future. As we all know, cooperation in a family is easier when everyone feels respected and understood.

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Vantage Advisors, LLC
50 East 100 South #101
St. George, UT 84770
Phone: 435-628-6336
Email: info@vantageadvisorsllc.com

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