Dave Ciambella

Mission Impossible: Equal Asset Distribution
July 11, 2007

Understanding the difference between equal and equitable asset distribution is essential to developing a strong business succession plan and building business value. Working exclusively with successful business owners on their succession plans for more than a decade, one of the questions that I am frequently asked is: “How should I divide my estate?” This can be a perplexing question for business owners who have multiple children some of whom are active in the business and others who are not active in the business.

Generally speaking, most business owners love all of their children equally and therefore wish to treat them equally in their estate plan, whether they are active in the business or not. With the help of their advisors they develop and implement wills and trusts that leave all of their assets equally to their children. While the estate documentation can be technically correct and the “love” appears to be equal, they may not be practical. Frankly, there is an unequal emotional impact many people fail to realize such as:

• Often times, children become partners with their siblings with unrealistic expectations (income, distributions, benefits, perks etc.)
• Children who make a career commitment to the business sometimes resent the fact that they are sharing the fruits of their labor with inactive siblings
• Inactive children’s inheritance is subject to business risks they cannot control
• Inactive children who wish to be bought out can cause financial strain on the business especially during a transition where profitability can be volatile

In the majority of cases, the business owner’s net worth consists of closely held stock and real estate associated with the business. They have reinvested their profits back into the business to increase working capital and to grow the business. After all, their business is something they know, understand and feel they receive their highest return on investment. As a result, they have not accumulated significant wealth outside of the business. So when it comes to dividing their estate among their children, they often struggle with how to divide the estate.

The bottom line is: succession planning is achieved most effectively through an equitable asset distribution rather than an equal asset distribution. Mission impossible then can become mission possible!

Next Topic: There is a way! - Equitable Asset Distribution

Posted by Dave Ciambella on July 11, 2007 | Comments (0)