Christopher Walton helps individuals, families and businesses deal with the various complex issues brought about by death and mental incapacity. Here he shares his tops tips for successful family business succession planning.
A recent probate case making its way to the
Court of Appeal, and
reported widely in the media is proving a sobering example of how fall-outs in family businesses can be devastating – both for personal relationships, as well as for the business itself. Family business succession planning can make the difference between a lasting legacy, or bitter fall-out.The case of the Moore family and their family farm is a tragic case. A bitter dispute has broken out over ownership of the farm following the incapacitation of the owner (husband and father) through severe dementia. The details of the case are complicated and events take place over many years, but despite these complications there are lessons that family business owners can learn as we look to secure their family’s futures:
1) Plan for your death or mental incapacity from the moment you start, or take over a business
It’s the last thing most people think of, but the consequences of ignoring the question of incapacity or death can be disastrous. No one wants to consider their death, or the fact they may become incapacitated through illness but when your life’s work and your family’s legacy is at stake it is fundamental to put proper planning in place.
2) Take advice about how you can fairly compensate children who do, and do not contribute to the business
Sometimes it’s really hard to treat your children equally under a will if you are in business with one, but not all of them. This is especially the case with capital-rich, cash-lean family businesses, such as some farming partnerships (i.e. lots of valuable land but little cash in the bank). There are lots of potentialways of anticipating imbalances and catering for them, and the trick is to discuss your very particular circumstances with an expert with experience in complicated probate and trust matters.
3) Take joint advice from a group of expert advisors: your solicitor, accountant and independent financial advisor
Make sure they are all in agreement as to the best course of action. Allow for any inconsistencies in advice or unforeseen problems to be highlighted, discussed and dealt with at the draft stage before actions are implemented. It may be helpful to discuss any proposals with potential beneficiaries so all are clear as to the plan of action, from the start, and any concerns a beneficiary has can be alleviated.
4) Be hard-headed and try to separate your business from your family
Easier said than done, especially where a business has been in the family for generations and where family ties and emotions are involved. What would be the best commercial decision in the circumstances? How would you treat a non-family member differently? Aside from inter-generational planning, what are the tax consequences of any proposed actions? These are all questions you have to consider, and that the experts can assist you with answering fairly.
5) Appoint independent parties to adjudicate
It may be best for independent professionals to be appointed if a dispute is on the horizon. Professionals in such roles, such as solicitors and accountants, are held to a higher standard than lay people and are more likely to take independent, balanced, and unemotional decisions in the best interests of all parties.Running a successful family business can be as rewarding as it is challenging but the lesson is not to neglect the future for the day-to-day. Being open, prepared and pragmatic will future-proof your legacy so that it continues to be positive and profitable for your family for generations to come.
Find out more about family business succession planning at Setfords.
Sometimes it’s really hard to treat your children equally under a will if you are in business with one, but not all of them. This is especially the case with capital-rich, cash-lean family businesses, such as some farming partnerships (i.e. lots of valuable land but little cash in the bank). There are lots of potentialways of anticipating imbalances and catering for them, and the trick is to discuss your very particular circumstances with an expert with experience in complicated probate and trust matters.
5) Appoint independent parties to adjudicate