Families that work together in business share similar concerns with other families as the family expands through marriages and the births of children and grandchildren that create potential successors in the family firm. Invariably, these concerns are either discussed openly and as unemotionally as possible, or they are never discussed until some family crisis.
When one thinks about "tough conversations,” one of those might occur when a child gets engaged. There is a concern about whether the child is marrying someone “worthy” of them. There may be worries about how the espoused individual will fit into the family, and if their values match those of the family. In the case of a business-owning family, one of the frequently unspoken worries is how the affianced individual will, or will not, become involved with the family business. Normally there is a follow-on concern about keeping the business “in the family” and not having a “married in” become an owner merely because of marriage or, even worse, because of a divorce.
If a family has not made it a practice to hold tough conversations early in the life of the children, the “who-is-this-person-you-just-asked-to-marry-you?” discussion can be very contentious. Thus, it is good practice to talk about potentially difficult topics when children are young. It comes down to discussing and managing expectations.
One easier topic to tackle is teenage driving. While your child is in grammar school, ask them if they expect a new car on their 16th birthday and if they expect you to pay all of the expenses for their car. This is a fun practice talk to have even if you are met with rolling eyes and pouting.
Talking about how a child can enter the family business is a great conversation to have, even if the child is fairly young. (I did this with our younger son when he was 9. Result: Ryan fully understood that he could not work in our firm merely because of his last name and that we were not the employer of last resort.) This can head off an expectation that there is a ready-made job for the child, irrespective of whether they meet the job requirements, or correct their thinking that if there is no opening, a job will be created for him/her.
Talk about how compensation is established, so the child doesn’t expect a higher salary and benefits only because of their last name. Or discuss just what comprises the family’s wealth to belie any assumptions that there is an endless supply of money (unless there really is) and to let the child know that they aren’t entitled to it all. Wise business-owning families even discuss whether family members will be required to have a prenuptial agreement drafted when they become engaged, so this is no surprise when the engagement actually occurs. Remember, surprises are great on anniversaries, holidays and birthdays, but dropping the “prenup” word at the engagement party will not win a family member any favors.
As they grow up and mature, let your adult children know about your plans regarding business ownership. Don’t keep your succession plan in a drawer somewhere. Take it out and discuss your written plan with your children, irrespective of whether they work in the enterprise. Keep it a work in progress and ask for their insights and input. You don’t need to share actual personal balance sheets or discuss numbers with your children (or with their spouses, if they attend family meetings).
Make it a habit to hold regular family meetings. An important meeting to schedule at least every two to three years is one in which you review your estate plan. It is wise to have your adviser or team of advisers address various parts of an agenda that you have approved in advance. You do not have to deliver the information yourself, but you and your spouse should be in the meeting.
It has been my experience that children who work in the business with their parents are glad to know their parents have lifetime and estate plans that are carefully designed and crafted. It’s also nice to know who is named as successor trustee, who is the named executor, who has durable power of attorney and who is named in the advanced directive to physicians. As tough as it may sound to discuss death and dying, the adult children with whom I have met really appreciate knowing “things are taken care of,” that probate will likely be avoided and that competent people are named in the documents to step in, once their parents are incapable or have passed away.
By holding these discussions, it’s also comforting to know that good, solid planning has been done so that selling the business to pay estate taxes isn’t going to be necessary. Lastly, it’s beneficial to let your adult children know that your estate plans mirror your succession plan, by announcing this in advance of your demise. As frightening as this may sound, managing expectations before you head to the office in the sky may lessen the fallout after your demise, or stimulate further discussion about tweaking your plan, if your trust is revocable.
Tough conversations are just that — hard to start, hard to continue and hard to finish. However, if started early enough, with practice, family members can learn to manage less thorny conversations, build up their expertise in listening, honor rules of discussion and learn how to exchange ideas without hysterics. Remember, greet expectations with a sense of humor, openness and calmness, and it will pay terrific dividends to you and your family.
Eddy, CFP, is president of San Diego-based Creative Capital Management Inc. and co-founder of the Family Business Forum at USD. She can be reached at firstname.lastname@example.org. Comments may be published as Letters to the Editor.