Why Equal Isn't Always Fair

Let's be direct about the problem. If you divide the business equally among all children:

The working child loses control. The child who has dedicated their career to the business now has siblings as equal partners—siblings who may have different risk tolerances, different ideas about reinvestment vs. distributions, and different levels of understanding of the business.

The non-working children become passive investors. They have ownership but no role. They may expect distributions that the business can't afford to make. They may second-guess decisions. They may want to sell when the working child wants to grow.

Conflict becomes structural. The interests of active and passive owners are inherently different. This isn't about anyone being a bad person—it's about incentive structures. The working child wants to reinvest and grow. The non-working children want distributions and liquidity. These goals often conflict.

The business value may suffer. Family conflict, unclear governance, and competing priorities can damage business performance. The pie everyone is fighting over gets smaller.

On the other hand, if you give the entire business to the working child and nothing to the others, you've created a different problem: resentment, perceived favoritism, and the sense that years of family relationships have been reduced to a financial transaction.

Defining "Fair"

Before discussing structures, it's worth stepping back to ask: what does "fair" actually mean in your family?

Different families have different values around inheritance:

Equal division regardless of circumstances. Some families believe every child should receive the same, period. The working child's contribution to the business was compensated through salary; inheritance is separate.

Compensation for contribution. Other families believe the child who helped build the business has earned a larger share. Sweat equity matters.

Based on need. Some parents consider each child's financial situation. The child who is already successful may receive less than one who is struggling.

Legacy and stewardship. Some families see the business as a multigenerational asset that should go to whoever will be the best steward, regardless of birth order or equality.

There's no universally "right" answer. The right answer is the one that reflects your values, can be explained clearly, and gives your family the best chance of maintaining relationships after you're gone.

Common Approaches That Work

Over the years, we've seen several structures that successfully balance these competing concerns:

1. Business to One Child, Other Assets to Others

The simplest approach is to give the business to the child who works in it and equalize with other assets for the remaining children. If your estate includes real estate, investment accounts, life insurance, or other assets, these can go to the non-working children.

The challenge: Often, the business is the most valuable asset by far. If your business is worth $8 million and your other assets total $2 million, perfect equalization isn't possible. You may need to use life insurance to create additional assets for equalization.

2. Life Insurance Equalization

Life insurance can create instant liquidity at death that didn't exist during life. If you want the working child to receive the $8 million business, you might purchase life insurance with a death benefit sufficient to equalize what the other children receive.

The mechanics: The policy is often owned by an irrevocable life insurance trust (ILIT) to keep the proceeds out of your taxable estate. At death, the trust distributes to the non-working children while the business passes to the working child.

The challenge: Life insurance costs money, and premiums increase with age and health issues. This strategy works best when implemented while you're relatively young and healthy.

3. Installment Sale to the Working Child

Rather than gifting the business, you can sell it to the working child—either during life or structured to take effect at death. The purchase price creates a note that's payable to your estate, which then passes to all children equally.

The mechanics: The working child buys the business for fair market value, paying over time with interest. Those payments go into your estate (or directly to your other children through trust structures). The working child ends up owning the business outright, and the other children receive the cash value.

The challenge: The working child needs to be able to service the debt. If the business can't support those payments, the structure doesn't work. This approach also doesn't provide the working child any "discount" for their years of contribution—they're paying full price.

4. Voting vs. Non-Voting Shares

You can restructure the business to have voting shares (which control decisions) and non-voting shares (which receive distributions but have no control). The working child receives all the voting shares; all children share the non-voting shares equally.

The mechanics: The working child has complete operational control. But all children participate in the economic value proportionally. If you want the working child to receive a larger share of the economics (not just control), you can tilt the ownership percentages accordingly.

The challenge: This structure works well during good times but can become contentious if the non-voting shareholders feel they're not receiving adequate distributions. Clear governance documents and distribution policies help manage expectations.

5. Buyout Rights and Put Options

You can give the working child the right (or obligation) to buy out the other children's interests at a predetermined price or formula. This ensures the working child ends up with full ownership while the others receive fair value.

The mechanics: All children initially receive equal ownership. But the operating agreement includes provisions for the working child to purchase the others' shares—either immediately after your death or over a defined period. Life insurance on you can fund this buyout.

The challenge: Valuation disputes can arise. A formula that seemed fair when drafted may not seem fair at the time of buyout. Consider including independent appraisal mechanisms or clear formulas tied to objective metrics.

The Sweat Equity Question

A recurring tension in these conversations is whether the working child has already been "fairly compensated" through salary and benefits over the years.

Some parents argue: "Sarah has worked in the business for 20 years and been well paid. She's already received her share. The inheritance should be divided equally."

Others argue: "Sarah could have made the same salary somewhere else without the risk, the stress, and the sacrifice of building our family business. Her contribution to the business's growth goes far beyond her salary."

Both perspectives have merit. The key is being explicit about which view you hold and why, so your children understand the reasoning—not just the outcome.

The Conversation You Need to Have

Whatever structure you choose, the most important element is communication. Too many families learn about these decisions only after a parent dies—when it's too late to ask questions, understand reasoning, or process feelings.

Consider having a family meeting—or a series of one-on-one conversations—to explain your thinking:

Explain your values. What does "fair" mean to you? What are you trying to accomplish?

Acknowledge different contributions. Each child has contributed to the family in different ways. None is more valid than another, but they may lead to different outcomes in the estate plan.

Invite questions. Let your children ask questions now, while you can answer them. This prevents misunderstandings that fester for years.

Be open to feedback. You might learn something that changes your thinking. Or you might confirm that your plan is right. Either way, you've shown respect for your children's perspectives.

These conversations are hard. Many parents avoid them precisely because they're uncomfortable. But the discomfort of a conversation while you're alive is far less damaging than the conflict that can erupt after you're gone.

When Professional Help Matters

These situations involve complex intersections of estate law, tax planning, business valuation, and family dynamics. Getting it right typically requires a team:

Estate planning attorney to draft the legal documents and structures

CPA to analyze tax implications of different approaches

Business valuation expert to establish fair market value

Financial advisor to coordinate the pieces and model different scenarios

Family business consultant (in some cases) to facilitate difficult family conversations

Our role is often as the coordinator—the person who ensures all the advisors are working toward the same goal and that the financial projections underlying the plan are sound.

If you're wrestling with how to handle a family business in your estate plan, we'd be glad to think through the options with you. There's no single right answer—but there are approaches that work better than others, and the best time to plan is now.