Succession – As parents do we think our children ever grow up?

Once upon a time, and it was really not that long ago, there was a loving mother, Henrietta, who desperately wanted to treat her three children equally. As well as the family home and a few other investments she was the proud custodian of the family business which had been trading for over 150 years.

The eldest child Elizabeth was entrepreneurial and had established her own highly successful business, Edward the middle child had dedicated his life to being a charity worker, while Mary the youngest worked in the family business and indeed still lived at home with her mother.

Henrietta had drafted a seemingly very fair will – everything to be shared between her three children equally. She then died at the ripe old age of 97. The sandwiches had not even been served at the wake when Mary announced that she planned on running the business going forward. 

“No way,” said Elizabeth, “we need to sell the business and go our separate ways”. The first of many rows ensured. Elizabeth wanted her share of the estate to pass to her own children, Edward wanted some money to assist his meagre income, but Mary just wanted to prove she could keep the business going (and she wanted to stay in the family home).

Over the next few months, much bitterness ensued and with each taking their own professional advice the costs mounted and mounted. Further, the business itself suffered as Mary could not give it her full attention – staff left and indeed there were problems keeping on top of the finances. 

Finally, a compromise was reached with the family house being sold and Mary buying her siblings out of the business, but Elizabeth and Mary vowing never to see each other again.

While the above story seems tongue in cheek it is based on a real incident and is not uncommon. 

For generations, laws and tradition assumed the eldest son inherited the most. Now we are living in the 21st century (thank goodness) each child, regardless of gender, could be entitled to a share of the family business, and with that comes a lot more litigious family disputes in the courts – not just over the family silver. 

These arguments can often end with disastrous consequences. A tale that is often heard, but most difficult to navigate is where a parent has suggested one thing but this has been misunderstood or they have changed their minds. 

For example, a recent case I worked on involved a farming family. The two parents had two sons, one son had entered the professions and the other remained on the farm with a very small wage but with the promise that “one day, this will all be yours”. 

The parents then changed their minds with the result that the farming son sued. The son won. However, the ensuing legal costs were so high that the farm had to be sold and even worse, given the length of time it had taken to sort there were also some taxes due.

While there are always going to be family squabbles, the most important thing tends to be communication. Strong and clear communication, and involving children in the process of deciding inheritance of a family business is important, wherever possible. 

One of the best examples I saw of this was Douglas. He was very happily married, with two sons and also grandchildren. He had set up his own business which was an immense success. 

By the time he was in his sixties it was clear there was one child genuinely interested in the business and indeed was working his way up. The result was that Douglas made it very clear what his succession plan was. A few years later the one son became the MD with Douglas taking a slight step back to be Chairman. 

Douglas has been very clear with his sons both of whom he loves. The intention is that one son will inherit the business while the other will inherit other assets. It may not be an equal split but at least the business will continue to function once Douglas really does decide to hang up his boots. Further his son and he are remaining flexible and review the situation fairly regularly to see whether the grandchildren potentially would like to be involved or if they should consider merging or even selling the business.

As the title of this article suggests, many parents may and do find it difficult to talk to their children about the more serious matters in life.  Parents may include their children as executors to their wills, but many still find it difficult to talk to them about serious matters which may affect them while they are still alive – who wants to think that they get dementia or some other debilitating condition which may mean that someone else may need to look after them.  

However, as we are living longer these are things that we need to discuss with our nearest and dearest. When it comes to the family business discussing it can be done in a variety of ways. It can include the traditional idea of sitting around the kitchen table to potentially discussing it with a third party (the family solicitor and/or accountant) or even involving a specialist business consultant.  The key things are talking and listening and potentially accepting that there may need to be compromises.

From this, any contemporaneous documentation should be drafted and legal and accounting paperwork drawn up. The position can and should then be reviewed regularly.

And so if we compare two of the people in this article, despite having very different businesses they both wanted the same thing – to keep their business going. Henrietta regarded herself as the custodian of her business and so it had to survive and be passed on. 

She effectively saw the business as automatically carrying on regardless of what she said in her will and so she kept that side as simple (at least as she thought) and fair as possible.  Douglas is very much a self-made man, but he accepted the importance of being flexible with the business, making changes where necessary, but at the same time keeping some of the older traditions going. 

He was also clearly very proud of being able to see just how dynamic and hardworking his own son was and is to keep the business not just going but thriving. Possibly most importantly as he has relinquished some of the control he can continue to enjoy being a father and dote on his grandchildren.

Imogen Lea is a tax and trust consultant at Wilsons Solicitors