FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients.

Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate.

Today, we examine Part 4 – Transfer a Business with a Contract

Suppose you have a house, $2 million in investments and a coveted family business you want your oldest child to have even though you think everybody else will be ticked off. Consider entering into a contract while you’re alive selling the business to that child, instead of including it as a specific bequest in your will or trust.

~ Ashlea Ebeling, 10 Ways to Lawsuit Proof Your Estate

Ainer & Fraker, LLP Analysis

While the basic advice in Part 4 is sound, it does not come close to eliminating the sources of family friction as it relates to the family business.

While it is harder to contest the lifetime sale of a business than it is to contest a bequest or devise – the real challenge is how to equalize the inheritance to all children, whether they work in the family business or not.

As it was discussed in Part 1 – Treat Siblings Equally – litigation and family friction can be largely avoided when all children are treated equally.

However, when it comes to a family business, even isn’t equal, and equal isn’t even.

If one child has been working in the family business, while others have been pursuing their own passions, it is only right to hand the business over to the child who has invested their life in the long term success of the family business.

However, if the family business is the majority of the family’s net worth, then how can the other children receive an equal inheritance?

Consider using life insurance to save the family business.

If you establish a buy-sell agreement – and fund it with life insurance – you can give company stock to the child who wants it, and cash to those who would prefer cash.

Everybody wins:

  1. The company is wholly owned by the child who can ensure it’s success
  2. The Child who works in the business has total voting control
  3. The Children who don’t want to work in the business aren’t tied to it for money

The Family Business is saved – and Family Harmony is preserved – for the cost of the insurance premium.

John Erik Fraker, Esq.

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John Erik Fraker, Esq.

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