My wife and I have 3 children (all boys). In their teenage years they ate – a lot. It was common to have a family squabble or two whenever we enjoyed a meal of pizza, bought/made a cake, or enjoyed a treat that came in a quantity that was not divisible by 3. If you ever had teenage boys, you know they are food motivated. Each son wanted to ensure the pizza or cake they enjoyed were in the same size or quantity of their siblings. In these examples, while we did not break out the scale to confirm each son received a fair or equal amount, they knew whether or not they thought they were treated fairly in relation to their siblings – and told you if they didn’t.
As children become adults, in some situations their concept of the term “fair”blends into their concept of the term “equal”. In succession planning, trying to make things purposely equal or purposely unequal in relation to your children may come with undesired consequences.
One example is where you name your children jointly as the Executors of your Will, the Attorneys of your Enduring Power of Attorney or the Agents in your Personal Directive. I have seen parents make this decision because they want all their children involved in making decisions for them. In other words they don’t want to play favorites or leave anyone out.
If you name your children jointly in your estate planning documents, they are required to work together to make decisions for you.
In my experience as an estate planning/estate administration lawyer in Medicine Hat, multiple children acting jointly can work in many cases.
I have also seen situtations where this does not work well. In some cases the children genuinely do not get along with either other. In other cases, the difficulty is the children live in different cities/provinces or one or more of them is busy with work or family matters.
If you appoint your children to act jointly and they have challenges working together, important decisions concerning your estate, assets and personal health may be delayed resulting in negative consequences.
If the deadlock is serious and cannot be resolved by agreement, a court application may be required to remove one (or more) of your children from these roles.Introducing the court process tends to further fracture poor relationships betweenchildren.
I generally recommend parents consider naming their children to act consecutively (one at a time). This can allievate the issues possible with multiple children acting, but may not solve everything – where the non-acting child mistrusts the child who is acting on your behalf.
Another place in estate planning where fair may not be equal is in relation to how parents may distribute a family business, and in particular a farm or ranch through their estate.
In a family business, it is common for one or more children to be more actively involved in the family business more than the others. In the context of the family farm or ranch, there can be a) the farming child who lives and works on the farm, provides full time labour services for years at less than market value, and may have been promised the farm/ranch in the future and, b) the non-farming child who may have had their education paid for by their parents, they reside off the farm/ranch but come home at harvest/branding and help out from time to time.
In many cases the non-farming child expects to receive an equal amount of the business that the farming child may receive.
The parents, on the other hand, are interested in keeping the business in the family for the next generation. In order to keep the business viable for the farming children, the parents may give more (or most) of the the business assets to the farming child which results in an unequal distribution between farming and non-farming children.
While children may inherit from their parent’s estate an unequal distribution, without planning and communication, this distribution may strain the family relationship between children. Most parents do not want their estate distribution to be the reason why their children and grandchildren no longer talk to each other or visit during the holidays.
Just like every family is different, there are different approaches parents can utilize to meet their goals of providing assets to the farming children to carry on the family business, while still providing a “fair” distribution to the non-farming children.
The best solutions to this issue result from a team approach with input from your lawyer, accountant, financial planner, and insurance agent. Active and regular communication between you and your adult children about how you want to distribute the family business is important to ensure the business and the family relationships continue to be positive. The stakes are much higher than the time your eldest son snagged the last piece of pizza!
If you want to discuss how to set up the successful transition of your family business, contact me to get the conversation started.
Les Scholly helps you navigate the turning points of life. He is a partner with Pritchard & Co. Law Firm, LLP and member of the Society of Trust and Estate Practitioners (STEP).
Contact Les at 403-527-4411 or at lscholly@pritchardandco.com
