Owners of family businesses often find themselves in a dilemma over how to treat their adult children fairly when one or more is interested and capable of taking over the business and the other adult children are not. Certainly, the owners are not about to turn over their life’s work to anyone (their closest kin included) without the required desire and skills to carry on the family business. At the same time, the owners often want those same children to benefit from their life’s work. Further complicating the matter, are the children who will someday be running the business and do not want their value diluted by having to share profits with a sibling(s) uninvolved in the day to day operations and taking the day to day risks associated with business ownership.
Enter life insurance.
Properly acquired (in other words, properly negotiated and priced), life insurance can be a tremendous equalizer, making sure that each adult child is treated fairly per the business owner’s wishes. At the business owner’s death, the interested, capable adult children take over the business and the less interested, less capable children are assigned the life insurance proceeds.
The above is a clean, fair and pre-agreed to strategy for dealing with a very difficult planning issue in the family business arena. This planning idea will not only deliver exactly what each adult child needs and wants at the owner’s death, it also eliminates resentment and creates peace between family members. These non-economic/soft issues are not always expressed, but are always present and are a tremendously important part of any estate plan.
