Whose Wealth Is It?
Phil and Marty Edwards have co-owned Edwards Brothers, multiple franchise holders in the moving industry, since their parents died twelve years ago. Despite a seven year age difference, the brothers and their families are close. Marty, VP for Operations, has a more expansive vision for the businesses, but has yielded to Phil’s conservatism. “My day will come,” he told me.
Unfortunately, his day is coming too soon to suit anyone in this family, including himself. His older brother Phil, 50, just suffered his second heart attack. The business is stressful, and to appease his wife and avoid fraternal conflict, Phil has decided to retire.
None of Phil’s children have shown interest in the business, so selling to Marty makes sense. But there is an obstacle in the terms of the trusts created when their parents died, and the shareholders’ buy/sell agreement: Phil’s leaving the business would result in each of his children getting legal control of almost three million dollars when they reach twenty-five. Their ages today are 24, 22, and 17.
Without going into the legal mechanics here, the problem is that Phil can’t get any of his capital out of Edwards Holding Corp. and Edwards Leasing LLC without liquidating his children’s stock as well. In fact, each of their trusts already has about two hundred thousand in assets from dividends paid to them over the years. I was troubled when I learned, two years ago, that none of Phil’s and Marty’s children had been told about those assets already in the trusts, nor about the termination age. But I understood the parents’ desire that it not be a topic of discussion.
Phil and Sarah believe their daughters will be cautious with their inherited wealth and accept parental management until they reach a level of maturity and sophistication. Not so their oldest son, who dropped out of college after one semester and lives with a girlfriend he’s refused to let his parents meet. A cousin described her as “scary.” He will be twenty-five in six months.
Marty proposes they seek ways to postpone the buyout as long as possible, which he’d prefer for financial as well as family reasons. But that would tie up most of Phil and Sarah’s capital. Furthermore, Phil confides in me that he doesn’t believe Marty has the needed finance background and communication skills to maintain the companies’ growth and profitability.
With the clock and Phil’s heart ticking, he and Sarah wonder what, if anything, they ought to tell their children.
copyright reserved 2006, Kaye Family Business Associates, Inc.
Unfortunately, his day is coming too soon to suit anyone in this family, including himself. His older brother Phil, 50, just suffered his second heart attack. The business is stressful, and to appease his wife and avoid fraternal conflict, Phil has decided to retire.
None of Phil’s children have shown interest in the business, so selling to Marty makes sense. But there is an obstacle in the terms of the trusts created when their parents died, and the shareholders’ buy/sell agreement: Phil’s leaving the business would result in each of his children getting legal control of almost three million dollars when they reach twenty-five. Their ages today are 24, 22, and 17.
Without going into the legal mechanics here, the problem is that Phil can’t get any of his capital out of Edwards Holding Corp. and Edwards Leasing LLC without liquidating his children’s stock as well. In fact, each of their trusts already has about two hundred thousand in assets from dividends paid to them over the years. I was troubled when I learned, two years ago, that none of Phil’s and Marty’s children had been told about those assets already in the trusts, nor about the termination age. But I understood the parents’ desire that it not be a topic of discussion.
Phil and Sarah believe their daughters will be cautious with their inherited wealth and accept parental management until they reach a level of maturity and sophistication. Not so their oldest son, who dropped out of college after one semester and lives with a girlfriend he’s refused to let his parents meet. A cousin described her as “scary.” He will be twenty-five in six months.
Marty proposes they seek ways to postpone the buyout as long as possible, which he’d prefer for financial as well as family reasons. But that would tie up most of Phil and Sarah’s capital. Furthermore, Phil confides in me that he doesn’t believe Marty has the needed finance background and communication skills to maintain the companies’ growth and profitability.
With the clock and Phil’s heart ticking, he and Sarah wonder what, if anything, they ought to tell their children.
copyright reserved 2006, Kaye Family Business Associates, Inc.
2 Comments:
I can't believe they didn't think of this possibility when they made the trusts or put the stock into them.
In the actual case upon which that aspect of the story is based, the trusts were created by the grandparents -- if their attorneys made them aware of this possible situation, they must have either thought it was unlikely to happen, or they didn't care.
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