What Happens if Multiple Siblings Inherits a Business?

To many owners, leaving the family business to the next generation can be daunting, as most parents want to focus more on equality and fairness when dividing the estate and business among multiple children. However, this is not always the soundest decision for the continued success of the business, and frequently leads to family conflict.

“Fair” does not always mean “equal,” particularly if one child has taken an interest and devoted their adult career to help running the family business, but another child chose a different career path altogether. An equal division in this scenario would likely not be considered fair by either child, yet 60 percent of business owners report planning to divide their businesses equally among their children regardless.

There are a number of avenues toward an equal inheritance for all children, without equally dividing the family business, especially when not all are interested in taking succession of the business, such as:

• Recapitalize the business and divide the money equally among the children.
• Develop voting and non-voting stock for family members, allowing the children who want to manage the business more say in day-to-day operations and direction.
• Utilize life insurance policy death benefits with larger shares of the insurance payouts distributed to the children not receiving ownership in the business.

Planning for the transfer of your business to heirs should be developed in the early stages of your business’s establishment for the business to endure in the event of your untimely death. When deciding on what percentage of the business you plan to transfer to your children, carefully consider:

• Whether the business should be divided equally between children currently involved in the business and those who are not.
• What other assets are available for the children who are not involved in the business and whether they are equal.
• Should children outside the business inherit liquid assets as opposed to the illiquid assets those working in the business will inherit.
• Whether you should provide those currently working in the business with early inheritance today through ownership versus waiting until your death to inherit along with their siblings not involved in the business.

Your wealth, the business’s wealth, estate and income tax, and probate laws will change over time, so making a habit of regularly reviewing and updating the plan for your business to reflect these changes is also crucial for succession.

Have open and frank discussions with your children regarding your plan for the business. Doing so manages their expectations and begins preparing them for the responsibilities of managing the business and allows it to continue operating seamlessly. Explain your reasoning behind your decisions and the goals you have set for the continued operation of the business in your absence. If you anticipate discussions may be contentious between siblings, include your attorney, accountant, or other trusted advisors to help facilitate the meeting and frame the discussions.

In today’s world, it is not uncommon for children to not receive inheritances until they are in their 50s and 60s due to longer life expectancies now. At this stage of your children’s lives, they are likely well-established in their own careers, in or out of the family business. You may determine that lifetime gifting during crucial milestones in your children’s lives is more beneficial for the entire family and ownership transfers through gifts, sales, or equity compensation may be better options than an equal division. These methods also offer a smoother transition to the next generation and helps avoid disputes over your intentions regarding inheritance.

Estate planning can be a complicated and emotional experience but acknowledging the emotional impact of inheritances and prior decision-making allows you satisfy all of your heirs and solidifies the longevity of your family business.

Philadelphia Business Lawyers at Sidkoff, Pincus & Green P.C. Assist Business Owners with Estate and Family Planning

If you are a business owner, you want your business to thrive well into the future through your family’s generations. With careful decision-making and estate planning, you can ensure that your children and your business will be well taken care of following your death. The experienced Philadelphia employment lawyers at Sidkoff, Pincus & Green P.C. can help you develop a sound plan that benefits everyone. Call us at 215-574-0600 or contact us online to schedule an initial consultation. We are located in Philadelphia and serve clients throughout Pennsylvania and New Jersey.