When it comes to planning the succession of a business or an estate, is it important to be fair? Or should one put the welfare of the estate and the business into perspective? In a family, with two or three children there is a probability of one or more children being irresponsible spoiled brats. So, in diving one’s estate for the planning of the succession, is it advisable to give shares to beneficiaries who only squander the family wealth?
Estate planning is a tricky, one wrong move in delegating the family fortune and it can result into decades of court hearings. Choosing the corrupt beneficiaries can lead into the of decades of hard work. A great example would be the Vanderbilt clan who was once the richest in America. Now, they have lost their millions as well as their opulent houses.
Is Equal Fair?
What’s the difference between being equal in planning succession and being fair in planning succession? These two may seem synonymous but, they are far from being the same. Being equal in estate planning is giving one’s beneficiaries equal share of the estate. If one child gets $300,000, then the other child must also receive $300,000. Being fair on the other hand means that each share depends on each beneficiaries’ needs and capabilities.
Take for example the four problems of business succession: Squandering and failure to accumulate wealth, dilution and splitting of wealth, diversification of interests of family members, and lack of family unity. Beneficiaries who are not trustworthy of handling wealth will only squander it, similar to what happened to the Vanderbilt fortune. In this scenario, being fair or being equal can have bad consequences for the family in the long run. If all of the heirs are spoiled brats, then what will become of the wealth that family founders have worked hard for?
Another context to focus on is the splitting of wealth between family members. An estate estimated at 5 billion will be distributed among the beneficiaries. This distribution will cause the fortune to become smaller. The trust vs direct inheritance question then begins to bother the minds of HWNI as well as estate planners.
Not every beneficiary will be inclined to the family business; some will pursue other careers such as art or fashion. Others may become artists. In view of being fair compared to being equal, one should split the inheritance according to the needs and aspirations of estate beneficiaries. Wealth is after merely wealth, the ultimate goal of a family founder should be to build a lasting bond between all members.
Give to those who have the capacity to handle the reigns of the business, the position and inheritance due to them. And for uninterested members, give them financial support to pursue their wants in life. Aside from basing decisions on aspirations, it is also important to look at the capabilities of a beneficiary when planning succession. A younger son who is more capable than the older son should be given the opportunity to show his or her potential.
Making a will that states valid reasons for the inheritance given should help family members understand one’s motives for the division of the assets. In contrast to this writing, a will that is short and offers no explanation can cause court hearings to erupt after the death of the testator.
In planning succession, it’s important to take a more in-depth look at the impact of the decisions one makes. Being fair with the distribution of assets guarantees that there will be fewer squabbles in the probate court. Leaving a fair and honest legacy beats leaving marred relationships any day.
Interested in finding out more about planning succession? Grab a copy of the comprehensive book on estate planning by Chiwi Lee by clicking the link below.