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5. Introducing Holistic Planning Into A Practice: Family Business and Real Property Cases
The introduction of mediation into the estate planning process is a departure from traditional practice. It requires additional effort on the part of the planner and additional expense and time on the part of the client. Recognizing the value of this more complex approach is easiest in families with a family business or significant real property.

The clearest case for applying holistic planning is the family with a business. Planning the transition of a business from one generation to the next requires exploration of management, governance, ownership, and many other issues. The stakes are often high. For the adult children, the stakes can include substantial wealth, maintenance of an ongoing livelihood, and fundamental issues of self-image. The stakes for the parents can include the need for the enterprise’s continued health during their lifetimes because it represents a major source of their retirement income. Given the complexity and financial scale of this type of transition, the estate planning client is likely to quickly recognize the need for a more inclusive planning process.

Estates with family businesses (or other assets that heirs will hold collectively) rarely can be planned responsibly without involving the legatees. These situations usually put the children and other heirs or successors in line to become business partners upon the sale or transfer or equity, or upon the execution of the will or trust. Partnerships are demanding relationships, even when voluntary and well-prepared.¹⁸ When parents make decisions for their adult children about co-ownership or co-management of a family business, the risk of future conflict grows. A holistic approach is imperative with families that own such assets. The inclusion of the heirs in estate planning allows the heirs to decide if, and how, they will work (or own assets) together. Including heirs in the discussion will reduce dramatically the risk of disputes among siblings after their parents’ deaths. It also can prevent life-long resentments caused by parents’ seemingly autocratic control over their children’s lives from the grave.

Estates that include vacation homes or other real property also are prime subjects for holistic estate planning. Here again, potential partnerships and deep sentiments can come into play. Estate planners should include the children when determining their future relationships.

The following case studies illustrate the need for holistic planning when these special classes of assets are involved and demonstrate the utility of incorporating professionals who work for the family as a whole and who can interact freely with all family members. In this situation, the estate planner and client can feel confident that hidden agendas and intrafamily differences are thoroughly aired. In each of these case studies, estate planners introduced a holistic approach after traditional planning methods generated considerable costs and little value. Experience demonstrates that a holistic, team approach would have been preferable from the start of each case study.

A. Case Study 1: The Imposed Partnership
An estate planner was working with a father whose major asset was a ten million dollar family business. The father owned fifty-five percent and each of his three children owned fifteen percent of the business. Two of the sons helped run the business. The attorney tried to help the father with the business succession in the estate plan, proposing joint representation of both the father and the children if they would all consent to it in writing.

The consent letter warned the parties that information given to the attorney could not, and would not, be kept confidential from the other parties, and if a potentially serious conflict of interest developed between the family members, the firm would stop representing the children without explanation and continue to represent the father and the company. Despite their serious misgivings, the three children signed the agreement and worked with their father and the estate planner.

The family started working on a typical plan that had majority ownership going to the two sons who worked in the business and would someday run the business together as partners. Work on this plan resulted in many different drafts that included buy-sell agreements, employment contracts, insurance plans, and gifting strategies. Unfortunately, no one felt that progress had been made or that they were any closer to a workable plan after twelve months of meetings and drafts. Every time the lawyer drafted another plan, one of the family members would decide it was untenable. Each plan generated a new objection that had not been voiced during the discussions leading up to the draft of that plan. Eventually, all work came to a halt.

The essential problem was that family meetings with the estate planner were not designed to evaluate the underlying feasibility of the basic plan. The family never started at square one: They never stepped back to ask themselves what they wanted as individuals, what they wanted as a family, and what really was feasible.

Interestingly, a lawyer retained by one of the sons to review the plan pointed out an inherent shortcoming: the estate plan did not include a management plan to complement the ownership succession plan. This lawyer suggested that the father and two sons work with family business specialists who used mediation methods. They hired a mediation team comprised of a psychologist and a business consultant to work with them in developing a plan for employment, management, and ownership succession.

After meeting with the father and the two sons—jointly and separately —it was clear that neither the children nor the father really understood the legal documents that structured the transition of the business from one generation to the next.¹⁹ Although they all wanted the two sons to take over managing the business once the father retired, they agreed upon little else. The father was enthusiastic and optimistic about the two sons’ working together, but the sons were unsure that they could be an effective team.

Mediators helped the father see that by transferring stock in the company to his adult children, he was making them de facto business partners—even though they had never said unequivocally that they wanted to be partners or that they could work together well enough to be successful as partners. The mediators convinced all of them that it was in the father’s and his children’s best interests to have the two sons work on a partnership charter as a way of demonstrating whether or not they would be capable of working as a healthy partner team, and if they could, determining exactly how they would do it.²⁰

Working together with the mediators—and without their father—the sons made immediate progress, recognizing just how different it would be for them to work together without their father at the helm. Not surprisingly, one son practically begged his father to join them in the meetings and assist them in the process; that, of course, would have continued the three-way dynamic and defeated the purpose of testing the brothers as a two-man team. With the help of tests and structured exercises, the sons examined their leadership styles, their personal values, their expectations of one another, and the issue of fairness. Though it was an arduous exercise for them, the sons developed reasonably good agreements on how they would handle their differences.

Then, in a pivotal meeting, the sons mutually decided that regardless of how financially advantageous it might be to continue the business, their interpersonal difficulties made it unlikely they would ever enjoy working together or trust one another sufficiently to be partners. They both confessed they knew this was true based on the level of discomfort they experienced as they tackled the specifics of working together. Their father acknowledged that the sons had not worked in concert for years, even though they were the company’s key employees. They worked closely with their father, but not much (and certainly not well) with each other.

After this revelation, the father was reintroduced into the meetings, and together, the three explored the possibility of splitting the business into two separate companies, but cash-flow modeling helped demonstrate the infeasibility and impracticality of separating the business into two parts. The three then decided that one of the two brothers would buy the father and the other two brothers out of business over time. With the help of the mediators and the company’s accountant, the father and his sons used cash-flow projections to analyze the feasibility of the deal and secure bank financing.

A final document developed in the mediation, a management and plans, the parties’ roles, and the timing of events. All the parties, including the son who owned some shares but never worked in the business, signed the non-binding document, then gave it to the father’s estate planning attorney who completed drafting the estate plan.

As is typical, the basic incompatibilities between the two sons who worked in the business did not come to light fully during the seven years they worked together (though there were signs). The two brothers, who were allowed to split the profits between themselves every year in December, had a horrendous time with their accountant agreeing on the final numbers. Another sign was that they disliked working together in the company even though they were their father’s top two managers. The sons worked as individuals for their father, rather than as teammates or future partners.²¹

In the many meetings with the estate planner, the sons never discussed their basic incompatibilities or their problems working together and dividing profits at the end of the year because they did not feel free to discuss those issues. Like most adult children in similar situations, the sons never got over their belief that the estate planner was primarily their father’s representative and did not represent them in any meaningful way. In these situations, mediation conducted by family dynamics specialists can relieve estate planners of the burden of being neutral, when in reality, the planners are asked to function as experienced experts. ²²

This case study illustrates how family business experts with mediation skills can work with an estate planning attorney to ensure that the planner has all the input necessary to create an estate plan that will achieve the client’s tangible and intangible goals. The team approach enables the planner and client to handle ethical concerns about meeting with family members who have potentially conflicting interests without sacrificing the advantage of someone hearing everyone’s perspectives and ideas.

B. Case Study 2: Seeing the Whole Picture
This case study illustrates the importance of involving neutral professionals who can hear all sides of a family’s issues, so that the family, their regular advisors, and the estate planning attorney have a better chance to develop a plan that will leave the family socially and emotionally intact.

The parents, whom we will call Richard and Judy, had grown children and wisely recognized that it would be in everyone’s interest to talk together about their estate planning. The children were quite savvy in the areas of business, law, and finance. The estate attorney recommended that each child have independent counsel because of conflict-of-interest concerns. The legal and financial advisors conferred with one another, conferred with their clients, and circulated numerous proposals regarding real property, a business, and trusts.

During the family meetings about these proposals, Richard and Judy basically were on their own with their children and children’s spouses. Each meeting would begin cordially, but before long, someone was yelling while others would grow silent. Weeks, and sometimes months, would go by before they would attempt another meeting.

Some family members spoke between meetings, but rather than help, the conversations only raised suspicions of those not privy to them. As the relationships became increasingly strained, family members accused one another of conniving to gain advantage. Suspicions spread both within and between generations and adversely affected Richard and Judy’s relationship. Rifts in two of their children’s marriages also worsened.

The proposed plans had technical merit with respect to tax minimization, but were doomed from the start because the family had no discussion about the larger picture of the family’s transition—no one knew what was important to the other family members. Some family members later admitted to feeling they were on a runaway train. No one felt in charge, including the parents and their estate planner. The process, constructed to resolve the problem, was certain to perpetuate it because of a structural flaw: Each professional was working with only a few pieces of a much larger puzzle. They were unable to put the pieces together because each had a different impression of the whole picture. The result was that spouses’ and siblings’ needs and interests were either obscured or couched in terms of dollars. The professionals devoted hours to shaping a plan that would satisfy various family members’ dollar demands, only to have someone veto or sabotage the plan, causing everyone to view everyone else as irrational. Richard and Judy wanted to give up and once threatened not to give a dime to anybody.

Eventually, one of the children’s attorneys suggested that the family en a two-person family dynamics and mediation team. The team included a psychologist and a lawyer, both of whom had experience working with families, estates, and family businesses. After clarifying what their role would be vis-à-vis all the other professionals, the mediators set up a twoand- a-half-day retreat for the entire family, including spouses and one fiancée.

During the first afternoon and evening, the mediators met with Richard and Judy—together and separately—and likewise with the children and spouses. The next morning, the mediators started by meeting with the entire family, and the family agreed upon the ground rules for the retreat. The mediators asked each family member to address several issues, including their hopes for the family during the process and during the transition between generations. All had an opportunity to speak without interruption about what they hoped could be achieved with the family legacy, as well as the family business and properties. They all shared personal visions for achieving their goals, and the mediators started a master list of the issues. Subsequently, the mediators held individual and subgroup meetings, as well as meetings with the entire family. The list of issues grew, but at the same time, the family began to negotiate the issues. Many issues were a total surprise to some family members.

One hidden agenda the mediators helped to unearth involved the family business run by Richard, with considerable help from his youngest son, Bob. Richard had wanted to recognize Bob’s contribution by giving the enterprise to him, but he did not know that Bob hated the business and wanted no part of it. Bob had been afraid to tell his father because of the great sentimental value that he perceived his father had attached to the business. Running the business took too much of Bob’s time, to the detriment of his own separate business and his relationships with his wife and children. In a separate session, Richard told the mediators that he was continuing the business only because he believed his son Bob loved it and wanted to inherit it. Richard had lost his emotional ties to the business. The family dynamics caused this one issue to touch each family member in an inexplicable way. When the mediators brought everyone together and facilitated a discussion about the business between Richard and Bob, everyone first held their breath and then released a sigh of relief. The solution became obvious: Richard and his advisors would develop a plan to sell the business.

Some of the other negotiated issues included: what would happen to a summer cottage to which some of the children felt extremely attached and to which other children felt nothing; how would Richard and Judy handle certain valuable items that one or the other of them had promised to certain children; and how would Richard and Judy account for the considerable money they had given or loaned to some of the children over the years?

The sheer number of family members and advisors in this case study created an unusually complex situation; many estates pose similar challenges to the planner and involve tough decisions for family members regarding their lives, careers, and lifestyles. In these situations, it is critical for the mediators to explore the expectations of various family members and their spouses. In some instances, children’s spouses have even higher expectations than the children themselves. Control and succession issues involving real property and family businesses are issues waiting to explode if not properly addressed early on in the process. As this case study illustrates, until these issues are addressed in a safe, structured process, they can derail estate planning.

Though wealthier than most, this family was similar to others in an important way: although reluctant to admit it, most families have secrets —some emotionally charged bits of information to which not everyone is privy or aware. The nature of these secrets and histories makes a family unique. A major advantage of the mediation approach is the confidentiality it provides to people in private meetings with the mediators. These meetings, when conducted by experienced mediators, have the effect of quickly uncovering a family’s critical secrets.

The issues confronting families with real estate holdings and vacation properties are similar to those confronting families with businesses—and they confront a growing number of families. Vacation property ownership increased thirteen percent during the 1990s, to nearly four million homes.²³ Currently, “[O]ne out of every seven homeowners over age 65 also owns a second home that must be factored into their estates.” ²⁴

Parents who wish to pass property assets to their children are essentially making their children “instant partners,” just like those parents passing on a business.²⁵ After receiving these types of assets, children must make both short- and long-term decisions together.²⁶ They will be tied to each other financially in ways that are difficult to unwind. Sharing real property assets adds a level of complexity to children’s relationships far beyond that which they would have had if they did not share property.

Parents with vacation properties commonly imagine that all their children will want to continue owning the property. This, however, is rarely the case, and even when it is, there is often a naïveté about the ease with which siblings can share and manage the properties.

Parents may benefit from their estate planning attorneys’ helping them see the advantages of first talking with their grown children about the property transfer and then having the children jointly develop a partnership charter. The charter serves as a detailed guide for operating the partnership and includes provisions about how the ownership of the property could change.

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18
See DAVID GAGE, THE PARTNERSHIP CHARTER: HOW TO START OUT RIGHT WITH YOUR NEW BUSINESS PARTNERSHIP (OR FIX THE ONE YOU’RE IN) (2004); see also David Gage & John Gromala, "Not All Business! Mediating the Personality Differences Behind Internal Business Disputes," GPSOLO, Mar. 2002, at 10 (examining partnership problems arising from personality differences).

19
This situation frequently arises in family estate cases. When the first step is the creation of the legal documents, the family members, even if they are successful business people, have marginal comprehension of the true meaning and implications of the provisions.

20
A partnership charter is a preventive tool for people contemplating becoming partners, or for people who are already partners, who wish to clarify the various aspects of owning joint assets or working together. It is both a process and a product, and it raises eleven topics that must be discussed, negotiated, and committed to writing. The charter process is used in estate situations that necessitate ongoing collaboration and joint decision-making among heirs. See GAGE, supra note 18.

21
This is a common dynamic in family business mediations involving siblings. Typically, parents are oblivious to the problem, and though siblings recognize it, they have little idea about how to change it.

22
See David Gage & Scott Meza, "Achieving Collaboration Through Mediation," in THE FAMILY BUSINESS CONFLICT RESOLUTION HANDBOOK 190-93 (Barbara Spector ed., 2003). The authors describe a spectrum of roles that professionals may play when working with family businesses. They describe the steep hill professionals who enter the family system as experts must climb if they want to play a neutral role and, most importantly, if they are to be perceived by family members as neutral.

23
Jeffrey Zaslow, “Mom Always Liked You Best;” Who Gets the Beach House?, WALL ST. J., Aug. 15, 2002, at D1.

24 Id.

25
They might also be considered “accidental” or “involuntary” partners. Siblings receive no training for working as partners, which is why they need to thoroughly discuss, negotiate, and agree ahead of time on how they will work together.

26
See Olivia Boyce-Abel, "When to Use Facilitation or Mediation in Estates and Wealth Transfer Planning," FAM. OFF. EXCHANGE (Family Office Exchange, LLC, Chi., Ill.), 4th Quarter 1998, at 5.