Smart Inheritance: How to Keep the Business Running Without Giving Away the Farm

Ah, the age-old dilemma. Imagine this: You have a family business with a long legacy, but now it’s time to figure out how to distribute the inheritance after your passing. The catch? You don’t want to split the business voting shares equally among your children. Why? Well, for one, you know that not all your kids have the same level of interest or skill to manage the business. And let’s be honest, some of them are better suited to running the empire than others. But how do you distribute the inheritance fairly without making things messy?

Let’s dive into a fun and engaging exploration of how to do just that.

1. The Value of Involvement – Not Equal Votes

Imagine your three kids: Ben, Sally, and Jimmy. Ben is a successful lawyer, Sally is a skilled marketer, and Jimmy… well, he’s got a passion for pottery and dreams of opening his own studio (no judgment!). If you split the voting shares equally, Jimmy might end up with the same say as Ben, who’s actively involved in the business. Is that fair?

Not really.

Instead of treating voting shares as the golden ticket to fairness, think about involvement. The more involved a child is in the business, the more voting power they should have. This could mean giving Ben and Sally a larger portion of voting shares, while Jimmy could receive more inheritance in the form of liquid assets, real estate, or other investments.

By doing this, you reward the children who will be part of the company’s future, while ensuring that those who don’t want to be involved are still treated fairly. They’re not being forced into a role they don’t want, but they’re still receiving their fair share of the family’s wealth.

2. The Skill Factor – Fair Doesn’t Always Mean Equal

Let’s say your children each have unique skills, but some skills are more aligned with running a business than others. Ben, as the lawyer, could probably run the legal side of things, while Sally, the marketer, is perfect for business development. Jimmy, as the artist, may be more inclined to create, but not necessarily manage or steer the ship.

In this scenario, it would make sense to give Ben and Sally more voting power, reflecting their skill sets. You could structure it so that voting shares align with their contributions to the business’s success. Merit-based distribution is a powerful way to ensure that those who will put in the most effort to sustain the business are the ones who have the final say in important decisions.

But don’t worry—Jimmy still gets a sizable inheritance in the form of assets he values. Maybe a cabin by the lake or an extensive art collection that will appreciate over time. A happy Jimmy is a happy family, after all.

3. The Economic Contributions – Money Talks

Here’s a thought: not all inheritance needs to be in voting shares. If your children have contributed economically to the business, you could reward them by allowing their contributions to be reflected in their inheritance. For example, if Ben and Sally have already invested substantial capital into the business over the years, they could receive larger portions of voting shares. Capital investment and risk are often worth more than simply being born into the family business.

On the flip side, if Jimmy has a different interest but still wants to invest, maybe it’s time to talk about equity appreciation. His inheritance could come in the form of other family investments or diversified assets—assets that can grow over time and provide him with the financial security he needs to follow his passion.

4. Non-Voting Shares – Still Valuable, Just Not Controlling

Maybe you’re thinking, “But how do I keep the family harmony without alienating anyone?” A common solution is giving some of the heirs non-voting shares. These shares give the holder a stake in the business, but no say in the decision-making. So, if Jimmy loves the business, he can still benefit from its profits without getting involved in the daily operations.

This approach helps keep the business in the family while making sure everyone is happy with their share. You still retain control of the business with the active, skilled family members, but the passive members are also included in the wealth-building.

5. Create a Family Council – Involving Everyone (Without Giving Them All Votes)

One of the most forward-thinking ways to distribute an inheritance is to create a family council. Here’s the idea: You create a board-like setup where the active business members (Ben and Sally) have voting power, but all family members—regardless of involvement—have a say in the broader direction of the family’s wealth. Think of it as a family roundtable for big decisions, with voting shares still tied to expertise and contribution.

This system allows everyone to be involved in key decisions like charity, investments, or legacy-building, while leaving the day-to-day business operations to those who know the ropes best.

Conclusion: Fair Doesn’t Always Mean Equal

The key takeaway is this: fair doesn’t always mean equal. If you divide your inheritance based purely on the number of children, you might run into issues of mismanagement, frustration, or even conflict. Instead, a fair distribution considers involvement, skills, and economic contributions. By tailoring your approach to the needs of the family and the business, you can ensure that the legacy lives on, the business thrives, and the family remains united.

So, next time you find yourself contemplating your inheritance plan, ask yourself: Who’s truly involved? Who can steer the ship? And who deserves to be rewarded for keeping the family’s empire strong? The answers might surprise you.