One Child Runs the Business. What Do the Others Get? copertina

One Child Runs the Business. What Do the Others Get?

One Child Runs the Business. What Do the Others Get?

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Picture a couple in their early sixties. They own a business worth about $4 million. Everything else they own- the house, the 401(k), and some savings- comes to about $1 million. Their daughter has worked in the business for ten years and now pretty much runs it. Their son is a teacher a few states away who loves his life, is proud of his sister, and has never wanted anything to do with the company. The will says what most wills say: split everything equally. So when Mom and Dad are gone, what does the son actually own? Nobody did anything wrong here. The parents were trying to be fair. In this episode, Brandon and Brantley walk through why "split it equally" breaks down when most of what you own is a business, and what actually works. (The family is illustrative, a blend of situations we've talked through with people over the years.) What we get into: Door number one: split everything equally. Half of $5 million is $2.5 million each, and there's only $1 million that isn't the business. So the son ends up owning about 37.5% of a company he doesn't work in. He's entitled to the financial reports, a vote, and his share of the profits. Then the business makes $250,000, his sister wants to put $100,000 into new equipment, and he does the math on 37% of $250,000 and notices it's more than he makes in a year. Neither of them is wrong. And whoever runs the business owes a duty to the other owners, so if it gets ugly, it can end up in court, and that eats the capital you were fighting over. Door number two: the business to the one who runs it. She gets $4 million. He gets $1 million. The parents may think that's justified and the son may even agree. The problem is finding out about it in the lawyer's office after the funeral. Door number three: she buys him out on a note. Now the company is carrying about $1.5 million of debt in the same years it just lost its founder, and his inheritance depends on how the business does without Dad. He's not her partner anymore. He's her creditor. Ask anyone who's been there how Thanksgiving goes when cash flow gets tight. Door number four: sell it and split the cash. Perfectly divisible. Sometimes it's even the right answer. The daughter probably won't love it. The problem isn't the dividing. Every one of those doors is a way of carving up one asset. The problem is that there's only one asset. The second pile. Life insurance doesn't divide the business better. It creates a second pile of money on the day it's needed, so the business doesn't have to be divided at all. The daughter keeps the company whole. The son gets cash. Cash creates options, which has been a core idea of this show since day one. Why not term? Because you don't know when you're going to die. (If you did, you couldn't buy life insurance anyway.) A need with no end date calls for permanent coverage. Done right, a whole life death benefit can also grow over time, though dividends aren't guaranteed. Equal versus fair. Equal is a math problem. Fair is a decision, and you have to write it down. What if the daughter grows the business from $4 million to $10 million? The policy won't keep pace with that, and maybe it shouldn't, because she's the one who grew it. Then again, she might look at her brother's $3 million in cash and ask if he wants to trade. Whose life do you insure? Mom, Dad or both. Insuring both on a second-to-die policy can get more death benefit for less money. In Brandon's experience, though, there's usually one parent who's the primary owner, and that's often who the policy should be on. When the plan changes. Ten years in, someone shows up with an offer the family can't refuse. The policy doesn't back you into a corner. You can change the beneficiaries or take the cash value and use it differently. Adding life insurance to a plan like this almost always leaves everyone with more options than before. When you don't need this at all. The parents may decide the business goes to the child who built it, and that's that. Plenty of kids are fine with it. Just say it out loud, with everyone in the room, while you're alive. If a sale is already planned, term coverage until the deal closes may be all you need. And siblings can own a business together and do fine, as long as there's a solid operating agreement the parents put in place before they go. The honest framing: the family and every dollar figure here are illustrative, and nothing in this episode is a quote or a recommendation of an amount. A life insurance policy funds the plan. It doesn't write it. The will, any trust, the business valuation, and the tax side belong to your attorney and your CPA. And the policy solves the money, not the family. That part takes a conversation. Want more on the business-owner side? Start with our guide to life insurance for business owners. _______________________________________ Everything in this episode is general, and your situation isn't. Want to see what a well-built policy would do with your ...
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