Articles >> Manufacturing An Acceptable Outcome

The key to handling complex issues associated with succession and estate planning 

If there is one thing I've learned in my 24 years in this business, is that working with clients on end-of-life and estate planning issues is rarely easy. It's often highly emotional and, frequently, quite contentious. When you add the complex issue of succession planning for a family business, you have a volatile mix that can make the entire process quite difficult-that is, unless you as an advisor, have a plan, stick to it and remain impartial in the midst of the politics.

his point was driven home recently as I worked with Robert and Lucille. They were a nice couple from upstate New York with a son and a daughter. They also had a manufacturing business that was started by Lucille's grandparents and run by Robert for the last 32 years. The couple had been my investment clients for years.

Robert started in the business years ago. In fact, that's how he and Lucille met. He worked his way up through the ranks and took over when Lucille's father retired. It's now a $15 million enterprise with 15 to 20 employees and Robert's pride and joy. Their oldest child, a daughter, is employed in the business, but not actively involved in working with Robert on corporate leadership issues. The youngest child, a son, was never interested in working for the company and chose to pursue a career as a social worker.

Lucille has always been a stay-at-home mom content with raising her family and letting Robert run the business. Through the years, Robert and Lucille accumulated a comfortable nest egg of savings, investments and real estate, while their children actively pursued their own interests.

Robert and Lucille's family functioned quite well within this framework-until Robert was unexpectedly diagnosed with cancer. As you can imagine, the diagnosis threw the contented family into turmoil. As the couple's financial advisor, I knew their investments were in order, but had concerns about their estate plan and the business.

As it turns out, so did Robert's son, who began pressuring his father to face some of these issues and make plans for the inevitable. At the same time, Robert's treatments made it difficult for him to concentrate on the complex matters involved. Meanwhile, Lucille started to endure some health issues of her own, in addition to her worries about Robert.

The dynamic between the two siblings was more tense than usual. His daughter, who is involved in the business, knows she will not succeed her father-a hard fact to face for any child. But, she is not necessarily ready to see the firm sold. She is worried about her own future. On the other hand, her younger brother clearly sees the necessity for the family to make some far-reaching decisions. After all, his father is slipping, his mother has never been truly been involved in the business and his sister is not in a position to take over.

Before the diagnosis, Robert had just started opening up to me about the company and its prospects. Although he was not prepared to retire, Robert knew that he needed to address the future of the firm given the lack of a clear successor.

We had also been discussing the uncertain tax situation in Washington and its potential to complicate matters, as well as the family dynamics that were likely to play out as he started making the difficult decisions that would determine the future of his company and the financial legacy for his family. Aside from the emotions involved, all of this had the potential to cost dearly. The intensity of our discussions increased dramatically after Robert's diagnosis. I quickly recognized that I would be called upon to play an even greater role as a financial consultant and informal advisor to the family.

That's when I initiated a difficult discussion with Robert about our relationship and establishing some clear ground rules between the two of us that would help me offer sound and impartial advice.

That was a hard step for me to take, but over the course of my career I had seen firsthand client/advisor relationships fracture during similar life and family challenges. When we talked, I told Robert I would make recommendations for actions and resources that he might want to consider. I also made it clear that he must do his own due diligence, be prepared to act, and most importantly be comfortable with the decisions he made for himself and his family. He agreed and we got to work.

Our first challenge was the company's defined benefit plan. It was underfunded, which created a huge burden for the company and a potential liability for Robert. I gave him the names of three accountants with whom I was familiar and who had handled companies of comparable size.