Houston Estate Planning Law Blog

HOW LEAVING A FAMILY BUSINESS TO YOUR CHILDREN CAN END BADLY

As we’ve said in past blog posts, if a person does not make the proper arrangements before their passing, the ensuing problems can often times lead to tenuous legal battles and ugly family rifts that never seem to come to a resolution. This is possibly the most true when it comes to family run businesses, which many people here in Texas can attest to.

But according to many business experts, some problems can be averted if a little more attention is paid to estate planning before a company’s owner passes the business on to their children.

It’s advice that could have been used by three Minnesota brothers who finally settled a long-standing legal battle that had been brewing since their father’s death in 2004.

Started in 1960, the men’s father began the family’s legacy by founding a company in the hydraulic brakes industry. The company quickly grew and now has an estimated revenue of around $52 million.

But it seemed that it was always the father’s dream to pass the family-owned business onto his sons, constantly urging them to take jobs at the company. Eventually, the eldest son was promoted to president of the company’s board of directors, soon followed by his younger brother who took up the position as executive vice president. All seemed well, and after the father’s passing, each son owned 50 percent of the company’s voting shares along with the responsibility of continuing what their father had started.

But eventually, the younger brother noticed that he was being left out of meetings, pulled from email lists, and was even being forced to take involuntary administrative leaves. It soon became apparent that his older brother was trying to force him out of the company. Their father’s wills and company plans never included provisions for such a thing and by 2006 the younger brother was forced to sue.

Though the lawsuit was settled in 2011, the division that occurred in the family likely could have been avoided. As some business experts point out, when leaving companies to your children when you pass, it’s often times important to plan meticulously so as to avoid a sticky situation such as the one above to happen to you as well.

Source: Star Tribune, “Lawsuit over control of family-owned MICO ends with $21.8M award,” David Phelps, March 31, 2013

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