This is our last article in our estate freeze series.  The first talked about the purpose of a freeze, the outcome, and some of the considerations.  The second and third articles overviewed some of the mechanics.  This fourth and last article discusses some of the soft issues that need to be addressed as part of the overall planning, such as family communication and expectations.  In our experience, it is often the soft issues that get little attention.

I recall a presentation to a group of lawyers, accountants and other estate planning advisors where the speaker asked the audience, by a show of hands, how many of them would choose to go into business with a sibling, cousin or other relative.  A small fraction of the audience put their hands up.  After asking a few participants why they answered the way they did, he surprised the group by reminding them that while a large percentage of them would not go into business with a close family member, this is exactly what they were advising their clients to do. 

An estate freeze effectively transfers the business to the next generation and binds those parties into joint ownership. If the business isn’t sold before the founders retire or pass away, the beneficiaries of the shares are now in business together.

There are three options when you are no longer interested or capable of running the business?

1)      Sell to a 3rd party (eg, a competitor or strategic partner);

2)      Sell all or partially to management; or

3)      Succession to your family.

The first 2 options are essentially complete once the transaction is done.  Option 3 is the one that takes ongoing attention.  The challenge, of course, with transferring your business to your children is, if there are multiple children, do they all work in the business and partake in ownership?  Do they have the right skills and training for the business to continue successfully?  If there are multiple children, but not all work in the business, are those in the business happy reporting to and being responsible for the wealth of the others?  Do the non-day-to-day family members have enough faith in those in the business to effectively steward their wealth?

If, however, a transfer of a family business isn’t done in a neat timeline, but is initiated by the untimely demise/incapacity of the founder, who can take over the reigns?  Is appropriate management in place (family or not) to handle the business?  Have these contingencies been planned for?  Often owner managers are the sole signatory at the bank and have the only set of keys – so how is payroll made next Friday?

In our experience, the biggest challenges with family businesses come as a result of expectations and desires not communicated effectively.  You may want your business to continue after you are gone, but are you leaving people behind capable and desirous of doing that?  Have you told them what you want?  Have you listened to their wants, needs and expectations?

For all the technical work that goes into an estate freeze, it’s important that an equal (or greater) amount of effort be spent discussing what happens afterwards, how it all works, what the next generation can expect, and most important, what is expected of them.

Check out our blog series on family meetings for a bit of guidance on starting a succession dialogue. It starts with a simple question– do you have any interest in being involved in my business?  The answer may shock you.


Our estate planning posts consider estate planning issues at a high level.  Before you commence any form of estate planning, please consult with tax and legal advisors.