Legal Blog

The Weekly Scenario from Steve Shane – 7.22.13

Question:  I have a family business.  Certain children of mine are involved with the business and others are not.  How do I balance the inheritance and compensate the children who work in the business for their ‘sweat equity’ contribution? Answer:  This is not an uncommon occurrence and, in general, most business owners wish to treat all their children as fairly as possible.  That being said, business owners often want to recognize the efforts of those children who are working in the business who are the ones responsible for maintaining the family business, and the ones who are charged with increasing its value. Making all the children partners in the business may seem to be a reasonable plan, but rarely makes for a happy Thanksgiving dinner. The siblings who are not involved with the business many times wish to sell and believe their involved siblings are paying themselves too much in the way of compensation.  On the other hand, those working in the business seem to want their ‘non-involved’ siblings to stay out of stuff they know ‘nothing about.’  Those working in the business frequently receive profits for “doing nothing” (aka the blood suckers vs. the leeches). While there are a number of approaches, one way to approach this dilemma is for life insurance to be purchased on the founder.  The beneficiaries of the policy may be children who are not in the business, or a trust for their benefit.  Or a mandatory call right could be given to the children working in the business to purchase the stock of those not working in the business for fair value using the life insurance proceeds. The key here is that the strategy has to be affordable and fair to all.   It will likely take buy-in from the various factions to get a workable strategy. Steven E. Shane Principal Offit│Kurman Attorneys At Law 301.575.0313 Washington 443.738.1513 Baltimore 410.218.9339 Mobile 301.575.0335 Facsimile Please note the above material discussed is intended to provide only general information. Do not, under any circumstances, solely rely on this information as legal advice. Legal matters are often complicated. For assistance with your specific legal problem or inquiry please contact me directly.