|What's fair where my children are concerned?
Henry, 67, the owner of a closely held chemical company, is ready to retire and is preparing to turn over ownership of his business to his three children. Like many business owners in this situation, Henry wants to preserve the integrity and reputation of his business after he retires. However, he is concerned about treating each child equally and doing what is right for the business.
How will Henry fairly divide the business' value among the children, given their varying degrees of involvement?
- His eldest child, Kristin, is highly involved in the business and has the leadership skills and business savvy to succeed him.
- Devin, his second child, is married, lives in another state and works in a completely different field.
- Suzanne, the youngest, works for the company but isn't inclined to participate in the management of the business.
To help ease Henry's worries, a PNC Wealth Management professional worked with his attorney to formulate a plan to pass controlling interest in the business to his eldest daughter, Kristin. This was accomplished by issuing her voting stock in the company, while giving Suzanne non-voting stock.
Since Henry's outside assets are not sufficient to allow for an equalization of his personal assets among the three children, PNC also recommended a life insurance policy on Henry's life. The policy would be purchased and owned by an Irrevocable Life Insurance Trust (ILIT). It could provide both liquidity to the estate and cash to Henry's son, Devin, equalizing the value of the business interests passing to Kristin and Suzanne. It could also provide cash to equalize the gift to Suzanne, if necessary.
This solution helped Henry achieve his goal of retaining control of the business within the family, while equalizing gifts among all three children.