Family Business Wiki's Town Square

Family Business Wiki's TOWN SQUARE

Confronting the Fair and Equal Dilemma for Families in Business

One of the challenges facing the senior generation (generally the parents) for families in business is how to be fair to younger generations (generally the children and their spouses) in distribution of the estate.  Families in business typically own various assets, ranging from highly liquid personal accounts to real estate and family business stock.  The equal division of personal accounts can generally be accomplished without dissension in the family.  However, even an equal distribution can be viewed as unfair if one of the younger generation members has been exclusively responsible for the day to day care of the senior generation.  Real estate can be sold and divided equally but the fairness issue may arise if one of the younger generation is currently making use of the real estate.

The division of family business stock creates other challenges that require additional planning.  I want to address the challenge to senior generations to deal fairly with younger generations.  Let’s start with an undeniable truth:  An equal division of family business stock can be viewed as unfair.  This seems counter-intuitive.  However, it is likely that not all of the younger generation works in the family business.  An equal division of family business stock imposes a process on the younger generation that may or may not work.

First, the parents want their children to know they are loved equally.  This desire can translate into a mistaken view that the family business stock must be divided equally.  This view differs from the way the family has operated in the past.  For example, parents want to be fair even though they can never raise their children equally.  Expenses such as gifts, education, health and clothing are never equal among the children.  These expenses are never equal even between the parents.  Specific needs are taken into account to determine what will be spent.

Generally speaking, older children will be raised in a different technological era than the younger children.  There is no way to guarantee equal expenditures.  In our family, our oldest did not have access to smart phones or computer options available to the younger children.  It was impossible to impose an equal expenditure among the children.  However, even though the expenditures were not equal, each child knew he was loved equally.

Second, the process of how the younger generation will work together in an equal distribution of family business stock must be evaluated.  The interaction of the younger generation between those who work in the family business and those who don’t will be incredibly tense unless the process has been implemented and mentored.

The solution to the fair and equal dilemma is to practice a fair process with the younger generation since an equal division of family business stock does not inherently guarantee fairness or cooperation among the younger generation.  All members (senior and younger generation members) will usually work for a unified purpose regarding the family business if they view the process of reaching conclusions about distribution as fair.  There may be initial tension in the process, but this tension has a much better opportunity for resolution through communication as opposed to imposing an unannounced plan of distribution of family business stock.

An equitable process allows each member to outline concerns and offer suggestions.  It also allows the senior generation to mentor the younger generation instead of forcing the younger generation to deal with an unfamiliar plan of distribution.  An unfamiliar plan of equal distribution can easily result in lawsuits and permanent brokenness among the younger generation, obscuring the goal of optimized distribution.  If the focus is solely on the distribution without regard to process, many times the distribution will be considered unfair even if equal, the very dynamic most parents want to avoid.  Lack of preparation of the younger generation is a prime reason for problems in estate distribution that cannot be overcome by equal distribution.

Keep everlastingly at it.

Grant Goodvin     Family Legacy Consultant Group

Views: 91


You need to be a member of Family Business Wiki's Town Square to add comments!

Join Family Business Wiki's Town Square


© 2018   Created by Donald Levitt.   Powered by

Badges  |  Report an Issue  |  Terms of Service