Succession - the transfer of ownership, control and leadership
of a family business to the next generation - is private,
emotional and almost always contentious. Even mentioning it
can feel like opening a can of worms.
It is no wonder then that many families avoid discussing
the topic altogether. The older generation, most of who are
enjoying better health and expect to live longer than their
parents, find it easier to delay retirement than confront
the future or, worse, risk fuelling sibling rivalry. The younger
generation, though more pragmatic than their forebears, are
nevertheless susceptible to assumption, emotion and fear,
leaving them equally reluctant to nail down the future.
Awkward though it may seem, failing to plan effectively for
succession can be devastating. The absence of a robust and
timely strategy that takes into account all the family's financial
affairs and objectives can destroy the future viability of
successful businesses and trigger family conflict that endures
It's time for a cautionary tale.
The Tale of Fiction Ranch
Jake and Liz Chilcott run a successful game lodge on a large
ranch in the Fictitious Hills. Jake, who was born on Fiction
Farm, inherited it from his father and helped transform it
into a thriving wildlife reserve and popular lodge. Jake and
Liz have three children. Charlie, the youngest, lives on the
ranch and helps run the lodge with his girlfriend. He is passionate
about local wildlife and communities and expects to be involved
in the ranch's future. Suzie, the middle child, is in the
early years of a seemingly unstable marriage to a British
farmer with whom she lives in Ireland, together with their
two children. Robert, the eldest, who has little interest
in the ranch, is still trying to make his fortune on the London
Jake and Liz, now in their seventies, have put off discussing
the future of the ranch with their children in order to avoid
awkward conversations or conflict between siblings. After
all, they rarely come together as a family so when they do,
they naturally want to steer clear of thorny issues and have
a happy time. Besides, Jake considers himself fit and while
delighted to have the enthusiasm and assistance of his youngest
son, he has no intention of letting go of the reins just yet.
So for now, Jake and Liz have drawn up a will with the family
solicitor leaving the ranch and lodge to all three of their
children. They believe the equal distribution of assets between
siblings is the fairest thing to do.
Since Fiction Farm is a much loved family home as well as
a business, Jake and Liz understandably assume that their
children will be united in their desire to keep it in the
family. They also assume that Charlie, the only child who
has shown any interest in the business, would continue to
run the lodge and to draw an income from it. Anyway, there
is plenty of time to sit down and discuss it and make sure
everyone is happy.
In the event, Jake suffered an unexpected and fatal heart
attack due to undiagnosed heart disease. Liz and her son Charlie
continued to run the ranch until a few years later when Liz,
who had been suffering from ill health requiring expensive
care, also died.
Charlie and his wife then began to forge ahead with plans
to modernise the lodge and develop tourism on the reserve
while supporting local communities. But Charlie soon came
under pressure from Robert who wanted to inject cash into
his property business and from Suzie who had got divorced
and also desperately needed cash.
Robert and Suzie were determined to sell their thirds of
Fiction Farm and were within their rights to do so. Unable
to buy them out - thanks in part to his mother's care bill
- and unwilling to saddle the ranch with unserviceable debt,
Charlie was forced to agree to a sale. Although he managed
to retain a small acreage, it was not large enough to support
the wildlife and tourism business he had dreamed of running
with his own family. The sale of Fiction Farm was rushed and
acrimonious with the result that Charlie no longer speaks
to his siblings, the property was sold for less than it was
worth and a family built up over generations came to an abrupt
So what could Jake and Liz have done to prevent their fairy
tale turning into a cautionary tale? The answer is quite a
lot. A number of specific measures could have been put in
place to protect the family home, preserve the business and
keep the peace between siblings.
Consultation with a financial adviser at an early stage,
as well as a family solicitor, would have resulted in a view
of the family's financial affairs in the round leading to
much better decisions.
For example, with the knowledge that one sibling wanted to
take over and develop the family business and what, if any,
cash savings or other assets were available, a good financial
adviser would have recommended measures that might have allowed
Charlie to hold on to the farm and business and his siblings
to be happily compensated.
Working together, their lawyer and financial adviser could
have developed a comprehensive plan using a combination of
cash, savings plans, trusts and possibly life insurance policies
to forge an acceptable agreement on the division of assets
- without unnecessarily risking those assets - while Jake
and Liz were still alive.
A life insurance policy held in trust or a cash savings plan
derived from the income generated by the lodge, for example,
could have enabled Charlie to buy out his siblings and keep
the farm. It might also have helped pay for his mother's care.
In addition, a health insurance policy would have covered
his mother's care in full and prevented Charlie from having
to raid ranch income to pay for it, leaving the business more
vulnerable to a sale. Furthermore, cash in trust might have
protected Suzie against the financial difficulties that led
in part to the forced sale of Fiction Farm.
Of course, sometimes a sale of property and/or land is inevitable.
If a sale is anticipated, it is critical to plan for this
event rather than risk having to rush into it and undermine
the value of the estate, leaving offspring worse off than
they might otherwise have been.
Whatever the size of your business, assets and cash, succession
planning is likely to be essential to achieving your objectives
for the future. Don't assume that everything will work itself
out or that succession planning is a matter for wealthier
people and that it is nothing that a will can't take care
of. Sure, it will work itself out - but perhaps not the way
you intended. Succession is a real concern for ordinary and
wealthy families alike. In any case, with property values
soaring, you could be wealthier than you think.
Seeking legal advice and writing a will is important but
if you want lasting family harmony and a viable future for
your business to be included in your legacy, you would be
wise to seek robust financial advice as well.