Transferring the family business equally may still be perceived as unfair

Charles has recently been interviewed about why equal gifts by parents under a will are not already viewed as fair. You can read part one here and part two here. In this next part of the same discussion, Charles talked about how an equal transfer of a family business may also be considered unfair.

For example, a family has two children, a son (Frank) and a daughter (Grace). The father and Frank may have spent decades building up a family business. The business may be worth millions of dollars. Grace has never been involved in the business and has a separate and unrelated career. The father may then decide that he wants to treat Grace equally in his will. He decides to leave the family business in equal shares to Frank and Grace.

It is obvious that Frank may be very unhappy by this outcome as he spent decades working on the business while his sister had no involvement. Although the father may have had the best intentions when preparing his will, not enough thought has gone into the estate plan. The result may be a conflict between Frank and Grace and eventually litigation.

The transfer of a family business under a will should be carefully planned

Another similar example also illustrates how conflict may arise from the transfer of a family business.

In this next scenario, the father has two children, Jill and Jack. He also has a successful family business. His daughter Jill has worked in the company with him for many years. The business may be worth $1 million. The father decides to leave the entire business to Jill and to also give a gift of $1 million in cash to Jack. This may seem fair because each sibling is getting something that is worth $1 million.

However, Jill may be very unhappy about this. She may feel that the business is not a gift and that it is something that she earned. She would likely think it is unfair for her brother to get an equal gift of $1 million just for being a sibling.

This may get even more complicated if when the father passes away the business has decreased in value. The gifts may have appeared equal at the time the father prepared his will, but by the time of his death one of the siblings may end up with what appears to be a very unfair outcome. Tax consequences  may also differ as one sibling is receiving a business while the other a cash gift.

The lawyer drafting the will should be aware of these kinds of potential issues and should try to get as many details about the situation as possible. Many of these kinds of conflicts can be avoided with prudent estate planning.

To watch the full video click here. To find out more about Charles’ book, Bobby Gets Bubkes, click here.