Why can a business inheritance be harder to compare with cash?
Key takeaway
A business inheritance can be harder to compare with cash because heirs may receive different kinds of value and face different circumstances. Owners and their families may weigh equal dollar amounts against fairness in light of each beneficiary's situation, including the role of an heir who continues a farm or ranch operation. Business value can fluctuate, so a business share can carry more risk than a smaller, more predictable inheritance.
Equal and equitable distributions measure different things
Equal distributions give heirs the same dollar amount. Equitable distributions focus on what is fair in light of beneficiaries' circumstances and family objectives, as practitioners describe these approaches.
A cash comparison may miss the uncertainty attached to a business share. Practitioners describe business value as prone to fluctuation, while a smaller inheritance can be more predictable.
Operating succession changes the family circumstances
Farm and ranch succession can involve retirement income, whether the next generation will continue operating, and whether more property will go to on-farm heirs. Families also face the task of developing and sharing an estate plan.
Practitioners say equal treatment of children may prevent continued farm or ranch operation. Practitioners describe a larger portion for a future operating heir as legitimate, particularly when that heir contributed to the operation's financial success.
Family objectives shape the comparison
Family circumstances and objectives affect how practitioners describe a fair distribution. Equal treatment gives beneficiaries the same amount, while an equitable approach considers what is fair in light of their circumstances.
Succession discussions can address the business and family circumstances involved in choosing an approach. Practitioners say parents can discuss succession with their children without assuming that equal treatment is required.