Some parents dream of the day when their children will take over a family business. For those whose children have the same passion for the same line of work or business, seeing this occur can be a “dream come true.” For others, their dream becomes complicated if for some reason their child or children are not remotely interested in the family business, or the children have different levels of interest. Consequently, having a plan in place is important so that the business is handed down appropriately.
If there are no children interested in continuing to run the family business, there are a couple of alternatives. One is simply to sell the business altogether. The other would be to name someone outside the family to be the successor. In either of these situations, the children would not be burdened with the day-to-day operations but they could still benefit from the sale or the profits from it.
Where it gets sticky is when there is one child who wants to take over the family business and the other who doesn’t. Unfortunately, giving shares of the business to the children equally might create future conflict if there are disagreements about the way the company is being run, among other things.
There are advanced planning tools available that can facilitate an equal and equitable transfer. This will help to avoid unpleasant situations that can arise from simply giving the business to the kids and letting them sort it out.
Here are some estate planning tips on how inheritance equalization can be accomplished from an experienced Wisconsin probate and estate planning lawyer. These tips are particularly important because in many family-owned businesses most of the assets are tied up in sweat equity. If there is one child that has been more involved in the business than others, you have to consider whether their illiquid equity will factor into the distribution of the assets of the estate to the other children.
One solution is to equalize inheritance between children with the use of life insurance. Essentially, the children who are going to take over the business will inherit stock in it and those who are not involved will receive an equal amount from a life insurance policy naming them as beneficiary, in addition to other assets that are not business related.
Another option is to simply sell the business, or name a successor from outside the family to run it. In either of these scenarios, the children can benefit from its sale or the profits from its continued operation.
If you do not have adequate assets outside the business and are unable to insure your life for enough to even things out, your next question should be: Which goal is primary? 1. to make certain that your children are treated fairly and equally, or 2. to make sure the business has the best chance of surviving.
If you are facing a dilemma regarding the equalization of their inheritance involving a family business, seek the advice of a Wisconsin lawyer who is skilled in estate planning. Proper estate planning tools can help to make these transitions go more smoothly.
Daniel J. Krause is a Madison, Wisconsin lawyer who specializes in estate planning and probate matters. He has helped thousands of Wisconsin residents plan ahead for nearly 14 years.
Contact us through our website or call direct at (608) 268-5751 to schedule your free estate planning consultation.
Inheritance Equalization: Planning ahead now to reduce the burden for your kids later, Forbes, Article by Steve Parrish, January 16, 2013
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Telling Your Children About Their Inheritance, Wisconsin Probate & Estate Planning Blog, December 6, 2012
Using Estate Planning to Protect Your Wisconsin Family Farm, Wisconsin Probate & Estate Planning Blog, May 8, 2012