Make Sure Your Estate Plan Works as Expected
It's all set up, said the principal owner of a third-generation family business. If I die, my stock goes into a trust with three trustees: my lawyer, my accountant and my wife. She can benefit from ownership but won't get control. When she passes, the stock goes to my children. The plan was fine as far as it went---except for one problem---that's not what the will said. The will left the company's controlling stock to the wife outright. The trust would only kick in upon her death with a son becoming trustee with the family's professional advisers.
With no business experience, the wife was viewed as a very inappropriate individual to control the business. The family was working with a family business consultant who recognized that the owner's desires and his will were not consistent, and his lawyers went to work to amend the key document.
When did you last sit down with your advisers and thoroughly review your will? Are you sure it will function as planned? One business owner was shocked to learn that the co-trustees appointed to assure that a family heir wouldn't mess up the business would tend to go along with the beneficiary's wishes rather than risk legal confrontation.
In addition to reviewing your will and estate plan, we encourage you to engage in a fire drill or a pre-mortem exercise. While family members, employees and professional advisers may find it uncomfortable to pretend that the family business owner has died, actually walking through what would happen can reveal unanticipated outcomes. (See Pre-Mortem Beats Post-Mortem, The Family Business Advisor, April 2002).
The will and estate plan are critical to successful generational transitions in family businesses. Too many believe, however, that succession planning is complete when the lawyers have finished their work. The hard work of building a solid organization pursuing a sound strategy, ensuring qualified leadership, developing family cohesiveness and ensuring accountability with a strong board of directors cannot be replaced by legal documents.
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