Family-owned businesses are often the most complex type of asset to deal with in estate planning. There are multiple stakeholders to consider. On the one hand, you may want your family to continue enjoying the benefits of owning the business. But you may also want to make sure the business continues to run in a professional manner.
Asking a Fiduciary to Take on Multiple Roles can Lead to Conflicts
When it comes to estate planning for a family business, you should strongly consider retaining an attorney who is not already a part of the business. This minimizes the potential for conflicts of interest. It can also help reassure family members that nothing “funny” is going on with respect to the business.
Consider this recent decision by the Wisconsin Court of Appeals, which functions as something of a cautionary tale on this point. This case centers on a family-owned manufacturing business. The company’s CEO died in 2013. At the time of his death, a living trust he initially executed in 2005 provided that a number of nonvoting shares in the business would go to a separate marital trust for the benefit of the CEO’s wife.
The attorney who drafted the trust also served as a member of the company’s board of directors, as well as the successor trustee of the trust and personal representative of the CEO’s estate.
Conflict quickly arose between the trustee and the wife. She claimed the trustee “failed to provide her with information she believed he possessed regarding [the company’s] current financial status,” according to court records. She further alleged the trustee “had conflicts of interest” due to his continued service on the board–where her husband’s brother was chairman–and relationships with other family members.
All this led the wife to ask a Wisconsin judge to remove the trustee for “breach of his fiduciary duties.” Eventually the parties settled. But the wife later filed a new petition alleging the trustee was not complying with the terms of the settlement agreement–specifically, by continuing to withhold certain information about the company’s finances. This petition went nowhere with both the trial court and the Court of Appeals, which found the now-former trustee “met, at least minimally, his obligations of production and good faith under the contract.”
Get Independent Advice from a Madison Estate Planning Attorney
We do not know all of the particulars of this case. But one general lesson we can take is that asking a person to take on multiple roles with potential conflicts can lead to problems down the line. This is why you should always get independent advice regarding your estate plan, especially when your assets include ownership of a closely held business.
The estate lawyers of Krause Donovan Estate Law Partners, LLC practice law in the areas of Probate, Wills, Estate Planning, and Trusts. We assist clients in and around Madison, Wisconsin with all matters related to estate planning, trusts, and probate matters. Our dedicated attorneys will even make house calls if you are unable to come to our office.
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