On June 17, 2010, Family Business Radio’s hosts Meredith Moore and Pat Romboletti welcomed James Robinson, Partner at Schiff Hardin LLP and Stephanie Brun de Pontet, Ph.D. an associate at The Family Business Consulting Group, Inc., to discuss estate planning—its technical and emotional aspects.
Estate planning is about so much more than business and money and inheritance. It is about the legacy you want to leave—for the next generation and their children and all the children to come. Jim believes that if you keep the legacy concept and your invaluable family relationships uppermost in your mind, it really keeps the whole estate planning process on track and in alignment.
That being said, conflict avoidance is a predominant aspect of most family businesses, according to Stephanie. If they fear a conflict, the family will avoid the topic, such as succession planning. In his work, Jim sees two major manifestations of conflict avoidance:
- A reluctance to engage in the estate planning process or planning for succession at all.
- Once the estate/succession planning conversation is started, a reluctance to involve the adult children in the discussions.
Stephanie noted that in the long run, however, that avoidance only compounds problems. For example, a founder may pass away with unsigned succession documents on her desk. Jim said, “I can draft the best documents in the world, but if they’re not signed, they are worthless. We work hard to avoid this circumstance, because it’s a hard one to fix when it’s too late.”
In grappling with family business owners who try to avoid any type of planning, Stephanie referenced a common perception she sees among seniors—“Once I’m gone, whatever happens will happen. It won’t be my problem.” However, the cost of this attitude is huge, especially the emotional cost which seems to hit heirs the hardest. She has seen family relationships disappear as a result.
Stephanie urged people to understand that succession is a process, not an event. It needs to be as transparent as possible. A 5-, 10-, 15-year time horizon is optimal. And it can’t wait until the last minute.
You can begin the process by putting together a competent, trusted team—all family members/stakeholders, financial advisors, family business specialists, estate attorneys, and CPAs. Jim added, “The choice of team members needs to be client-driven since every family business is unique. No single trusted advisor has a handle on the full picture, which is why you need a team.” Also it is critical to include all the stakeholders in the process so that they are part of the decision-making. It helps avoid anyone feeling like the final solutions and their consequences were imposed upon them.
In your estate planning discussions, remember to consider scenarios regarding disability. In Jim’s practice, this issue is rarely addressed in the documents he reviews. If it should happen, you have to go to court and have a guardian appointed for the incompetent business owner who still has legal control of the business. To avoid this unfortunate circumstance, address disability in the operation agreement. “Be careful about the definition used to describe “disability,” Jim urged. “If you have a disability policy, use its definition.”
Regarding equity and its equalization—sometimes it is not practical to divide the estate equally among your heirs, especially when many of the assets are illiquid. One strategy Stephanie employs is to encourage the founder/patriarch to “take a raise”; that is, to take money out of the business so that they can diversify—and liquefy. It helps with the choices regarding estate planning and also with the emotional task of letting go.
From his years in law school, Jim shared the fact that everyone has a will—whether you have a document or not. Because if you don’t have your wishes expressed in a formal will of your own making, then the state of Georgia (or wherever you live) will be happy to supply a will for you. Although it may not even come close to being something you would want to happen. Jim: “It is rarely workable or satisfactory to anyone.”
This penetrating discussion is available as a download from our website. You’ll be impressed with the breadth and depth of Jim and Stephanie’s knowledge on this hugely important, highly emotional topic.
Stephanie Brun de Pontet, Ph.D. email: Brundepontet@efamilybusiness.com 678-773-1675 The Family Business Consulting Group, Inc. · 1220-B Kennestone Circle Marietta GA 30066 Phone 888-421-0110 · Fax 770-425-1776