It Might Be Better To Change The Locks! October 2021
Bill is the 72-year-old owner and founder of Nuts & Bolts, Inc., a hypothetical family business worth $50 million. He and Martha have other investments and assets that bring their net worth to around $75 million. They have four children, Marlene, Jennifer, Robert, and Jeromy, and nine grandchildren. Jennifer and Robert are employed in the business, Marlene is a college professor, and Jeromy a 27-years old, unmarried, want-to-be artist that has never sold a painting. He is content to live at home and spend his days painting rather than seeking employment.
The estate planning attorney asks Bill and Martha what they intend to do with the business, the apartment building, the industrial building that houses the business, their three homes, and Bill’s classic-car collection? Bill and Martha have a lot of concerns and questions.
The attorney responds, “I read a recent article about the ‘The Ten Estate Planning Lessons From the HBO series, ‘Succession.’”[i] (See Is Your Family a Sitcom?) I am paraphrasing what it said. And adding some political quotes that can be adapted to families.
- What is family? The answer may seem obvious, and was probably easier to define a century ago, but today we have to deal with marriages, divorces, remarriages, non-blood children from second and third marriages, children born out of wedlock, adoptions, in-laws, and even gender preferences. If and when the nine grandchildren marry and have children, there could be 30-50 people at family reunions. Who and how far down line do you want your estate plan to cover? Who is considered family?
- What about the Steps? That is, the stepchildren and spouses of your children and grandchildren. “Increasingly, blended families are complex webs of people who are often only connected through a single individual. While that individual is alive, it gives these relationships a tangible reason to exist and remain outwardly civil. However, when that person dies, and that single locus of connection is instantly removed, then all those relationships must redefine themselves. Conflict is inevitable.”[ii] In-laws and stepchildren often have significant influence behind the scenes on the blood relatives. It is kept in check while the patriarch and matriarch (the wealth holders) are alive and in control, and then exercised when there is less danger of being suppressed and out voted. “The problem we face today is because the people that work for a living are outnumbered by those who vote for a living.”[iii] Or, the family members that will responsibly manage the family wealth when it passes to the heirs can easily be outnumbered by those who are not responsible, dependent, and feel entitled.
- First generation wealth creators can be a problem. Simply put, founders do not want to give up control. When will you start the transition, who has the stewardship abilities, who does not, what training and experience is needed to produce good stewardship abilities, and how will each person be treated? Founders fear the idea of having nowhere to go and nothing to do after a transition. The key is to help them identify new opportunities and purpose.
- Time stops for no one. The transfer of the business and the wealth is going to happen. Your choice is wait until you die and let the children hire their attorneys or start the process now by communicating the plan to everyone and getting them the training and experience needed to be good stewards. If someone does not want to participate, then they may not participate in the benefits the family wealth offers.
- Family is not always the best choice. Are Jennifer and Robert really prepared to grow the company into the future? If Jennifer is appointed the CEO does that create conflicts and does Robert leave the business entirely, maybe going to work for a competitor? Do either of them really want the CEO position? Were they just in the business because dad wanted them in the business? Is the better solution hiring a non-family member to be the CEO and the children remain owners the CEO reports to? Another choice may be one child becomes the CEO and the other the Executive Director of the family foundation. “Instead of giving a politician the keys to the city, it might be better to change the locks.”[iv] Sometimes, the best thing you can do to launch children into the real world, is change the locks.
- Watch those documents and who has what. When I say estate planning most think “wills and trusts.” These are important but healthcare directives and powers of attorney can be more critical. Wills and trusts activate upon death, but directives and POAs can take affect prior to death and have devastating effects on a family. We’ve all heard stories of a caregiver who convinced dad at age 93 to change his beneficiary to the caregiver, or worse his 28-year-old new wife. That happens in families too. It is not unusual for a child who has discretion over the care of a parent in their failing years to be skimping on necessary healthcare expenses in order to inherit more money or access the parent’s bank and investment accounts for the child’s personal expenses, thus inheriting more than their siblings. A review of legal documents while alive and with all beneficiaries present, should be a regular activity. “I’ve come to the conclusion that politics is too serious a matter to be left to the politicians.”[v]
- Surprise! Jeromy got the classic-car collection. The attorney asks Bill and Martha, do you want your children involved in your estate planning or do you just want to drop it on them and let them fight it out? In what other area of life would you allow your children to do something or give them something without proper training and experience? Would you give them a car, let them go skydiving, play with power tools, or jump off a rock into the lake without having the training and experience they need?
Emotions affecting relationships are fear, surprise, shame, and sadness and are normally the result of unmet expectations (See Whose Honking That Horn). These typically revolve around feelings of unfairness, feelings that the “takers” in the family are living off of what the “producers” produce. “A government which robs Peter to pay Paul, can always depend on the support of Paul.”[vi] Children learn early how they can manipulate parents in order to get what they want, or to become the favored child over their siblings. This can be especially true when a business and substantial wealth and assets are involved. Families are a petri dish of emotions and when expectations are unmet, surprise is the first emotion, but it then spreads into fear, shame, sadness, or anger. Depending on the person affected, they will either implode, holding their emotions in and hiding them; or explode, which can take a variety of ugly forms. Even the imploder will eventually explode or disconnect from the family.
- Rational is in the eye of the beholder. The emotions mentioned above are often irrational and unconnected to truth or facts. Fights breakout over furniture, collectables, clothes, dishes, and tools. Not necessarily because they have value, but because one person irrationally just doesn’t want another person to have whatever it is. A real-life example is two sisters inherited the home they grew up in when mom died. One sister lived in the state where the home was located, the other in another state. The out-of-state sister wanted the home even though she would not live in it. The in-state sister said the out-of-state sister could have it and she would take other assets to equalize the inheritance. Seems fair and rational! The out-of-state sister said no to that offer. The next solution was to sell the house and split the proceeds. That was rejected by the out-of-state sister. I do not know how it was finally settled, but they both hired attorneys, which of course, reduced the amount of their respective inheritances. Hardly a win for anyone except the attorneys.
- You can’t win them all. There cannot be a happy ending to all fights. Sometimes there is just no way for everyone to get what they want. At that point the degree of unity and love in the family will determine the outcome. If those two do not exist, the family will come apart. “There is no fear in love. But perfect love drives out fear, because fear has to do with punishment. The one who fears is not made perfect in love.”[vii] Unfortunately, traditional estate planning using wills and trusts can pit family members against each other rather than creating a team united for everyone’s wellbeing. The family unit must always be more important than the individuals. There must be resolve and commitment to bettering the family no matter how difficult things become. If there is to be a fight, it should be a fight to hold the family together through all the storms and difficulties it will face. Ironically, placing family over self will achieve greater benefits for self.
- The magic elixirs are communication and timing. Again, unmet expectations create the emotions of fear and surprise and in turn lead to a breakdown in trust. Regarding time, start communicating NOW, but include a coach, such as what we do, because a family needs someone in the room who is unemotional and unbiased. A coach sees and hears things the family may not because the family has been talking and doing things the same way for so many years. A coach also knows the right questions to ask and how to ask them without stirring up emotions. Without a coach the imploders will keep it all inside to avoid uncomfortable conversations. In paragraph 7 I talked about training and experience. The family members need time and lots of it to get the training and experience required to steward the family wealth when they own it. Every business owner knows a new employee needs to be trained and experienced before giving that person significant responsibilities. It should be the same in families. (See #4)
When communication is lacking, people come to their own conclusions, which may be entirely unfounded and different than reality. If the communication is in writing, it too can be interpreted differently by different individuals, and completely misinterpreted. How many times have you received a text message or email that offended you only to find out after talking to the sender their meaning was completely different than your interpretation. How many times have you sent a text or email and found out later the recipient completely misconstrued your intention? Now the family is sitting around the lawyer’s table listening to the wills and trust being read, and you are surprised to learn you are not going to be the CEO of the family business or inherit the classic-car collection. While that may still be difficult to accept, wouldn’t it have been more understandable and less inflammable had those discussions taken place long before the parents’ passing than when they are not available to explain why they chose to do what they did. “For I am afraid that when I come I may not find you as I want you to be, and you may not find me as you want me to be. I fear that there may be discord, jealousy, fits of rage, selfish ambition, slander, gossip, arrogance and disorder.”[viii]
The HBO Series, Succession with its scripted turmoil may make for an entertaining depiction of family realities, but do you want your family to be an example of what not to do?
[iii] George Bernard Shaw (1856-1950)
[iv] Doug Larson (English middle-distance runner who won gold medals at the 1924 Olympic Games.
[v] Charles de Gaulle, French general, politician, and President of France from 1959-1969
[vi] Will Rogers (1879-1935)
[vii] The Bible, 1 John 4:18, NIV
[viii] The Bible, 2 Corinthians 12:20, NIV
Kip Kolson is the president of Family Wealth Leadership, a multi-family office and family coaching firm, and author of You Can Have It All; Wealth, Wisdom, and Purpose—Strategies for Creating a Lasting Legacy and Strong Family.