Written by Haans Mulder, JD, MBA, MST, CFP®
In the succession of a family business, two principles are critical, but almost always in conflict. One is that the ownership of a family business should rarely be divided equally among the next generation. This almost universally leads to deadlock and division among the next generation.
The second principle is to divide “all” of the family assets (including the business) as close to equal as possible among the next generation. If that isn’t done, resentment will likely consume relationships of the next generation. In other words, unequal ownership is critical to the successful succession of a family business and an equal division of assets in an estate plan is imperative to maintaining future family harmony.
To balance these principles, the current generation of ownership must determine whose the most capable in the next generation of leading the family business. These members of the family need to receive majority control of the family business so it has the greatest chance of continuing. At the same time, the current generation needs to figure out how to keep the ownership of all the assets overall equal among its children. This is particularly challenging if the family business is a large percentage of the overall assets.
If you have any questions or would like help with succession or estate planning, feel free to contact me.
Haans Mulder, JD, MBA, MST, CFP®
Partner, Cunningham Dalman, P.C.