I recently sat across the table from a client, a man who built his business from a single storefront in Queens into a multi-generational enterprise. He has two children. One has worked alongside him for twenty years, understanding every nuance of the operation. The other is a successful artist living on the West Coast, completely uninvolved in the company. His question to me was simple, but its answer is not: “How do I treat them both fairly?”
For founders, this is the central conflict. The instinct is to be equal—to split the business 50/50 in a will. But in my experience, that is often the fastest way to destroy both the business and the family relationships it was meant to support. Equality is not the same as equity. Gifting a controlling interest in an active business to a child who has no knowledge of it can be a disservice to everyone—the child running it, the employees who depend on it, and the uninvolved heir who is suddenly burdened with a complex, illiquid asset.
The goal is not division. It is stewardship.
Beyond the Will: Intentional Structures for Transition
A last will and testament is a blunt instrument for a delicate operation like a business succession. A will simply transfers assets upon death. It doesn’t create a framework for management, resolve disputes, or provide a runway for a smooth transition. For that, we create structures that separate ownership from control—providing clarity for the next generation long before that transfer happens.
A primary tool we use is a buy-sell agreement. Think of it as a prenuptial agreement for your business partners, even when those partners are your children. This legally binding contract dictates the terms under which a departing owner’s shares must be sold to the remaining owners. It can be funded by a life insurance policy, allowing the child active in the business to buy out their sibling’s inherited shares at a predetermined, fair market value. This provides liquidity to the non-participating child and unencumbered control to the one who will continue the legacy.
Without this agreement, you risk creating a scenario where one sibling is an active manager and the other is a silent—and potentially resentful—partner. This can lead to deadlock on critical business decisions, arguments over distributions, and ultimately, a forced sale or litigation in Surrogate’s Court.
The Role of Trusts in Business Stewardship
For many of our clients, a trust is the cornerstone of a business succession plan. By placing ownership of the company into a carefully drafted trust, you, the founder, can set the rules of the game for generations to come. You appoint a trustee—who has a strict fiduciary duty to act in the best interests of the beneficiaries—to manage the asset according to your instructions.
This approach offers several powerful advantages:
- Centralized Control: The trustee, who can be a trusted advisor or a corporate entity, can hold the voting shares of the company. This prevents a non-active child from interfering with day-to-day operations while still allowing them to benefit financially as a beneficiary of the trust.
- Professional Oversight: A trustee is legally obligated to act prudently. Their authority to manage a business held in trust is governed by New York law, including statutes like EPTL § 11-A-4.10, which outlines how a trustee must account for receipts from a business interest. This ensures a professional standard of care is applied to the company’s management.
- Contingency Planning: A trust can plan for multiple contingencies. What happens if the successor child predeceases you, becomes disabled, or wishes to leave the business? A well-drafted trust provides a clear roadmap, avoiding a crisis that could unravel decades of work.
The trust document is built around your specific intentions. It can be structured to provide an income stream to one child from business profits while granting operational authority to the other. It is a deliberate, precise instrument designed to achieve your unique objectives for your family and your company.
Your First Step Is Not a Legal Document
Passing on a family business is one of the most significant acts of legacy planning a person can undertake. The legal structures—the trusts, the buy-sell agreements, the LLCs—are simply the tools we use to execute a well-defined vision. The work begins before we ever draft a single page.
It starts with defining what “fair” means to you and your family. It involves candid conversations about each child’s aspirations and their desired level of involvement. It requires an honest assessment of the business’s needs and the leadership skills of the potential successor.
The first step we take with any business owner is not to draft a plan, but to listen. We begin with a confidential review of your corporate bylaws and shareholder agreements to understand the existing framework. From there, we can map out a transition that protects both your family and the business you built.
