Estate planning for family businesses revolves around more than just minimising the tax burden, it also entails dealing with the emotional aspects of holding family assembly meetings about such a topic and communicating ones wishes the right way. If put up for too long estate planning for family businesses might become a bigger issue than it needs to be, start as early as possible and with the help of an experienced specialist to avoid unnecessary emotional conflicts.
Litigations in Family Businesses
It is a known fact that the succession rate of family businesses from first to second generation is low. In Malta we do not have any statistics on the reasons for the failures of family businesses but UK statistics show that one in four families end up in litigation over a will with 42% of siblings never speaking again and 20% of children never speaking with their mothers. It will not be a surprise if it is found that the situation in Malta is worse keeping in mind the litigious approach we tend to take. But why should family relations have to end up this way when it could be prevented by proper estate planning for family businesses?
Many estate planners assume that their clients know exactly what they want and who gets what when they die, with their main objective being that of minimising the tax burden. For others the purpose of tax planning is to free up funds for other purposes, such as retirement. Thus, it is very important that time is taken to explore what the client’s real objectives are, to discover what are the more important issues and objectives for their clients and why.
Estate Planning for Family Businesses
Traditional family business estate planning (where parents present a de-facto scenario instead of discussing with their heirs) also tend to assume that all family members have the same shared objectives, intentions and aspirations, when it is now proven through international studies that psychologists and neurophysiologists seem to agree that it is virtually impossible for two persons to have an identical view of the world. This traditional approach to estate planning also makes the assumption that the next generation will in due time fall in line with the plans set out by the current owners. This cannot be more distanced from the truth. Therefore a different approach needs to be undertaken.
In view of the above, it makes sense to clarify the client’s objectives whether what is being proposed can be achieved without the co-operation of those who will be affected and at the same time keeping the family together although not necessarily in business together.
Emotions and Family Assembly Meetings
This type of discussion is normally held in a Family Assembly meeting, where the family is coached and guided in having a civil and structured forward looking and open discussion about estate planning for family businesses. Some families would have no problems in holding such discussions especially if they already have the necessary family governance structures in place.
One has to keep in mind that during such meetings emotions would be very high and if such meetings are not managed by competent facilitators, emotions will get in the way of effective communication and dealing with high emotions is even difficult for experienced practitioners let alone a specialist advisor with no experience in matters of estate planning for family businesses.
After such a family meeting, those involved should have a clear idea what the parent’s wishes are concerning estate planning for family businesses and why they are planning in this way. On the other hand the parents of Business Families should also realise and know what their children’s wishes and aspirations are. Each side might not be in full agreement with the other side’s view, but at least no one would be ready to torpedo the agreement as it would be in no one’s interest.
Family Business Advisers Ltd has the necessary experience to assist clients in this specialised area through our collaboration with top Tax, Legal, and Estate planning specialists. It is advisable that estate planning for family businesses is started as early as possible. Do not leave estate planning for family businesses for when it is too late.