Children wanting to work in and eventually take over the business expect to spend a lot of time and effort, with limited return initially. This may lead to an attitude that because of their hard work, they deserve more from their parents' estates.

On the other hand, children choosing not to be involved in the business, may believe that since they did not have a thriving business "handed to them" and had to make their own way, that they deserve more from their parents' estate.

Frequently, each view is reinforced by a child's spouse who may not fully understand the family's history and goals.

Parents naturally want to be impartial toward their children. Therefore, in order to avoid the appearance of taking sides, or perhaps having to confront these conflicting attitudes, many business owners choose to simply ignore the issue in their estate planning. Rather, they have a very simple Will or no Will at all, both of which mean that the estate gets divided among the children "in equal shares."

Even though this approach sounds reasonable, it fails to recognize something which we all know but rarely acknowledge. It is almost impossible to divide anything equally.

Unless an estate is made up entirely of cash or of identical items, equality cannot be achieved.

Imagine an estate in which the primary asset is a family business. Three children are to divide it equally. What is equal? Does one get the inventory; a second, the accounts receivable; and the third, the commercial real estate? How is the business valued? If there is a "book value," how accurate is it? How do you determine the "good will" of the business?

The only apparent way to treat the children equally is to liquidate the business and divide the proceeds equally. But even this may not work well. Perhaps the business is more valuable if it continues to run for awhile, for a variety of reasons peculiar to that type of business. On the other hand, a delay in receiving estate proceeds may prevent another one of the children from making a once-in-a-lifetime investment.

One thing is clear. If "equality" means that one child will receive the business under terms which will greatly hinder the opportunity for continued success, everyone will suffer.

Rather than equality, what most people are really looking for is fairness. In planning for the final distribution of the family estate, "fairness" means making a reasonable attempt to match individual needs and abilities with available resources. It also means trying to develop a plan as consistent as possible with the goals you hope to achieve if you are still living in 10, 15 or 20 years.

As most simple Wills are structured, there is absolutely no assurance that any of your children will have either the necessary cash or the opportunity to continue the business successfully.

WHAT IF?

FAMILY BUSINESS SCENARIO

Let's say that you are a widow with four children, a family-run business (including real estate) worth $300,000 and $100,000 in other assets. One son wants to continue in the business; the other children do not. If at the time of your death you have no Will, or a Will which divides your property equally among your children, each child will be entitled to a one-quarter interest in each of your assets. This means, for example, that the business son will now own one-fourth of the business ($75,000 ownership value). He also has $25,000 in other assets. Even if his brothers and sisters are willing to "trade" assets with him, the most he can hope to end up with is one-third of the business ($100,000 of the $300,000 value).

Under the best circumstances, this young business person is still a minority stock holder. He is not even legally entitled to exclusive possession of the property and must receive approval from other family members before making significant business decisions. If he wants to buy a majority interest in the business from his brothers and sisters, he may face some hurdles.

First, the other children are not required to sell their interests to the business child, and, even if they do, they can name their own sales price.

Second, where is this child going to get financing? The days of walking into the bank, shaking hands with your old buddies, and then walking out with a check are long gone. A bank may be very reluctant to make a loan to an untested young person who only owns a minority interest in the business.

Even if the child manages to obtain financing, how is this going to affect his ability to profitably operate the business?