February 19, 2019
No surprises: Why Your Will Should Not Be Kept A Secret
As a family business owner, you most likely have a will which outlines how your business assets will be distributed upon your death. After all, your business assets are probably your family’s most valuable asset and forms an integral part of its current as well as future wealth.
But do your family members know how you plan to distribute the assets of your business? Have you discussed your will with your family? Or is it a secret?
If you have not thought about it, do you realize that keeping your will a secret can create family discord if expectations of family members are not met? In fact, the unintended consequences of business owners keeping their wills a secret can tear families apart, put successful business at risk of failure, and lead to substantial legal costs resulting from rivalry among family members. Is this the type of legacy you would like to leave?
It’s probably not, especially if your intention is to ensure that the business you spent a lifetime building remains a going concern for the benefit of the current and future generations.
In many cases, matriarchs and patriarchs of family-owned businesses seek to divide business assets equally among their children, without taking into consideration their varying interests. For instance, some children might have a deep interest in the business, some might be currently working in the business, while others may choose to pursue their own careers and have no interest in the family business.
Typically, the underlying assumption of business owners is that all their children should be treated fairly and are therefore entitled to an equal share. It is for this reason that the will might remain a secret or is never discussed with family members. In such cases, business owners presuppose that their actions are in the best interest of their children and in their opinion, should meet their expectations.
In juxtaposition to the question of being fair through equal distribution of business assets is the sense of entitlement among siblings who believe that they are all entitled to an equal share.
Therein lie potential sources of family discord. In as much business owners believe that they are being fair as parents, all their children might not see eye to eye with them. Children who have an interest or are directly involved in the business tend to believe that they are entitled to a larger share. In such cases, business interest trumps love for family, inevitably leading to sibling rivalry and family discord.
Here are some questions to consider. Do you believe it is fair for a child who has no interest in the business to get an equal share? How do you expect children who have been working assiduously in the business to react to sharing the business equally with other siblings who spend their time building their own careers?
This brings up another consideration. In addition to your will, you should ensure your shareholder agreements provide current and future shareholders a mechanism to be bought out of their shares for fair market value. Creating a will and shareholder agreement separately without consideration for one another can also lead to future issues and costs.
Additional questions can also arise about the support of spouses and children with special needs. Has sufficient income been allocated to surviving spouses? Does the will address the requirements of family members or children with special needs? A secret will can ignore these issues, creating distress among family members.
Experience shows that secret wills usually lead to a breakdown in family dynamics and often the fall of family dynasties. Conversely, wills that are discussed with family members who each agree to their role and stake in the business often lead to a successful continuation of the business as a going concern.
The ideal platform to have these discussions is through formal family meetings with your beneficiaries present. This allows you to rationalize your decision about the division of your business assets and get the reaction of family members. While there is no guarantee that you will get express agreement from all the beneficiaries, you do at least get the opportunity to resolve any contentious issues and ideally prevent potential conflict later on.
Formal family meetings facilitated by your wealth advisor and/or legal counsel are ideal settings to have these discussions as they can help put some structure to the transition process and ensure that family members have a clear understanding of what you are trying to achieve and what they will be inheriting. It can also answer any questions and resolve any issues that the beneficiaries may have.
At the end of the day isn’t family harmony and success the ultimate legacies we would like to leave to our family?
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