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Excluding a child from the family partnership


Submitted by L.L., Indiana:

I'm blessed with four sons, a wonderful wife, and a large,
successful grain farming operation that I inherited from my dad.

Two of my sons farm with me. My oldest works for a large
chemical company, and the second oldest, Jack, has his own custom-farming
business.

I've pretty much concluded that Jack will never share my
farming or business values, and he won't make a good partner for his brothers,
either. He doesn't respect them or the land. I don't want him to have any
family ground.

I thought I had time to figure this out, but this $5 million
tax exemption that's going to expire at the end of the year is forcing me and
my wife to move assets to our sons now. If we parcel the land, it will lose a
lot of its value. But making all four sons partners won't work either.

My option is to gift land to the three sons and give other
assets to Jack. I know he wants his 25% of the land. If he finds out, he'll
explode.

Do I have to tell him what I've done? What other choices do
I have?


The solution:

Congress did high-asset families a great service by allowing
a person to gift a lot of value ($5.12 million in 2012) free of any transfer
tax.

But with that comes the pressure to force transfer actions
sooner than desired or practical, both from business and emotional viewpoints.
Complex structuring that often takes years of consideration and planning is now
forced through a short window of opportunity.

L.L. knows that his problem is not so much the solution of
dividing the land unequally, but rather his desire to do it without telling
Jack. He clearly sees this is not an option. No lid of secrecy is tight enough
to conceal monumental restructuring like this.

His drive toward secrecy is understandable. The blowback
from Jack is likely to be intense and extremely upsetting, possibly leading to
a permanent break in the family, something no parent wants to see happen.

Yet, if we take as fact his conclusion that Jack's values
and operating style are unacceptable, it will never make sense to make him an
operating partner in the family farm.

L.L. asks three questions:

1. Can he separate Jack from the farm without separating him
from the family?

2. If and when should he tell Jack of his plans?

3. Is there another option?

Flexibility is limited, yet there still may be time to pass
the land for all four sons' benefit (L.L. may not want to disinherit Jack's
children) by using entities that confer farming access solely on the other
three sons. L.L. should be sitting with his advisers now.

Whatever asset transfer he decides on, L.L. is right to
worry about the right time to communicate his plan. Should it be while
accelerating and positioning the family for the leap across the transition
chasm? Or should it be later, in midair, either when it's accidentally
discovered or at L.L.'s death, when everyone is off balance and emotional?

Parents in this position often decide on the latter. They
let the kids figure it out since they won't be there to see it.

But neither will they be there to communicate their
reasoning, to assure all of their equal love, to help discuss preferred
alternatives, to be the grown-ups helping to keep the family together.

Sometimes courage is the most essential planning tool.

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