Business Owners Should Consider Leaving Estate Unequally

June 22, 2018, by Shelley Thompson, attorney with Burns Figa & Will, PC

estate planning process

As an attorney practicing in the area of trusts and estates, and probate litigation, I recently considered the most common reasons for disputes between siblings and grandchildren after the death of a parent who owns a business or family land – the parent’s unwillingness to leave the estate unequally.

Often, a simple will or trust dividing their estate equally between the kids on their death, or upon the death of a surviving spouse, is a common estate plan that works for most families. It does not work well, however, when that parent owns a business or family land, and where not all the children are working together on that business or using the land. For example, if dad has spent many years building a business, and one of three of his children are working in the business, but he leaves it, along with his entire estate, to all three children equally, then the child in the business is faced with a difficult situation upon dad’s death. He is suddenly partners with his siblings, who don’t work in the business, and has a fiduciary duty to act in their best interests when determining distributions, his own salary, the direction of the business, sale of assets, investments and more. It is rare that every sibling will think the sibling running the business is doing a perfect job. It is also rare that the working sibling will feel good sending 2/3 of his company’s profits out to his siblings for the rest of his life. That simple estate plan, for a business or landowner, inevitably causes life-long tensions or breakup of family relationships, even in the best of families. It also often causes sale of the business or land.

In that example, dad’s better option would have been to bravely leave the business to the son working it, and leave his cash accounts and primary residence, for example, to his other children. The ultimate value for each child may not be precisely equal, but ultimately everyone respects the estate plan and feels good about the gift they received because dad made the decision. It is also more fair for the child working the business to receive its upside, while the other children might really appreciate receiving the whole house or all the cash. It’s a win-win and most likely to avoid the breakup of the family and business.

Similarly, with family land, if the parent’s goal is to keep it in the family, then leaving it equally to all children is the worst option. From there, it will be left to multiple grandchildren who are cousins and only remotely connected to each other and the land. Inevitably, the land gets sold with the owners cannot agree on something. The better option in this example is that the parent leave that land to one person who really values it, and leave other assets to the other children.

Admittedly, it is difficult for any parent to decide to leave one asset to one child and another to another child, because we all love our children equally. But it does them a big favor and helps them have avoid estate disputes that hurt their relationships, so in my opinion is a good option for many parents with businesses or land. In any event, being specific, clear, and unambiguous in your estate plan is the best approach for every client.