Finessing family inheritance feuds

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A family quarrel can destroy a wealthy estate. When heirs fight, be it over their inheritance or over the business, legal fees can go from hundreds of thousands to millions of dollars, leaving far less money for the “winners”. Regardless of the outcome, the angry emotions touched off by a court battle can splinter an entire family.

In many cases, a family-owned business is the largest asset of the estate. Because it continues to generate a stream of income and may appreciate in value, special consideration is required in an estate plan to avoid a fight for control or create a leadership crisis that could send the company and the family into a tailspin.

One solution is to prepare a family constitution that spells out the rights, values and responsibilities of every heir that has a stake in the business. The process typically begins with engaging an outside professional who can talk with individual family members to understand their personal goals, values and lifestyles.

That type of objective assessment is vital for succession planning, to ensure the right heir has the skills, experience and desire to take over the reins of the business. If two or more heirs are active in the business, then the family constitution can spell out their future roles, reducing the risk of a serious disagreement in the future.

However, other family members may prefer to play a passive role, receiving income from their stake in the family business. A family constitution can formalize those arrangements, and empower those individuals to pursue their own interests and move on with their lives.

Another aspect to consider is the position of spouses in the family business. In some cases, a husband or wife might be an ideal addition to the company’s succession plan. But there is always a risk that an unhappy separation or divorce, which could adversely affect the business’ stability, ownership and long-term value.

Therefore, it is critical to review the roles of in-laws, and any stepchildren, in an estate plan, especially one that involves a family business. In fact, a family constitution – signed by all heirs – puts arrangements in writing, reducing the risk of litigation over these assets and ensuring they understand the consequences.

It is critical that a family constitution is crafted with the assistance of the family’s Trust and Estate attorney, so that it can be properly incorporated into the owner’s estate plans. An experienced attorney can prepare those documents in a manner that will protect the value of the business, as well as the interests of the heirs. This is a winning strategy to prevent a potential family feud and preserve wealth for future generations.

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