Family Businesses in Transition
When families are feuding, fairness is always an issue—and usually, it’s about more than just money, it’s often about feelings.
When it comes to transferring wealth to the next generation, especially when those next generations are involved in the family-owned business, fairness goes beyond its textbook definition of “impartial and just treatment or behavior without favoritism or discrimination.” When it comes to families gifting their wealth to the next generation, fairness is in the eyes of the Grantor. A Grantor, who either created the wealth or, in some cases, inherited the wealth, is faced with being the judge, jury and executioner—unless “mom gets involved to protect the innocent.”
Fairness is a two-way street, and often needs a crossing guard. On one side of the street, we have the Grantor whose personal perception of fairness creates a framework for distribution of wealth among family members. On the other side, the beneficiary of that wealth creates his/her own interpretation of fair based on the size and distribution of the gift. But crossing the street is complicated by the oncoming traffic of opinions from family members, married-ins and friends, not to mention the evolving weather of emotions that can threaten to disrupt progress in an instant, without warning.
HERE ARE A FEW TIPS:
Remember that wealth is a gift not an entitlement. Beneficiaries tend to take better care of the gifts they receive than entitlements they think they deserve. When families frame an inheritance as a gift and something to be thankful for, they foster a culture that embraces that very philosophy, and the great responsibility that comes with it.
Equality is not achievable, but fairness is. No matter how hard you try, you cannot achieve equality because it is about more than money. It’s tied up in timing, genetics, opportunities, luck, and so many other factors.
Define "fair". This may be the hardest thing you will ever do as a family, but you need to spend time defining what fair means in your family. Defining “fair” isn’t just for those who have lots of assets; it is for everyone. It starts as soon as there is more than one party who will benefit from a gift you’re sharing with someone, whether it is tangible or intangible.
Expectations rarely yield expected results. Children either excel at what they want, the way they want, which leads to happiness, or out of a desire to please the Grantor, which eventually fails with unintended consequences. So, use your wealth to help children find their own gifts and offer them the greatest gift which is to tell them the story of how the wealth was created (the good, the bad, and the ugly). Share what it was like in the early years: the mountains climbed; the victories won. Let the expectations be the ones they set for themselves—your story will help them do it.
Don't keep score in a game where there is no winner. Siblings or beneficiaries who keep score are playing a game where there is no winner (except the attorneys), and will only foster jealousy, distrust, anger, and resentment between family members. Grantors are human; they are going to give what they want, to who they want, for their own reasons. Instead of keeping score, seek to understand why the Grantor is allocating assets in a certain way and support their decision. The results will be far better.
Let business be business. There is something innately gratifying about seeing your children carry on your legacy, especially in a family business. Focus on building a successful and profitable business and let the business pick its leaders. Simply put, family members benefit when the company is successful. The egos of those who do not get “what they are entitled to” may be bruised, but they will maintain their healthy bank accounts.
