Family Resource Management Fair Versus Equal What do Parents Owe Their Children? By: Jill Falloon, PHEc, Home Economics Section 915 – 401 York Avenue, Winnipeg MB R3C OP8 Should the assets of the farm be equally divided among the farmer’s heirs? Do the family members who are not farming have the same rights and privileges as the family members who are farming? Is it fair to treat siblings equally regardless of their contributions to the family business? Should the parents give a substantial portion of their estate to charity or should they give it to the kids? Is it justified to borrow against the business in order to treat siblings equally?
These are just a few of the questions parents have to ask themselves when they are thinking about their retirement, passing the farm to the next generation, and planning their estate. Unfortunately there are no right answers when it comes to the question, what do you owe your children? However, here are a few points that may help you with this personal struggle. Ultimately the answer to this question is between you and your spouse. Understanding Family Tensions Succession planning, i. e. transferring the farm to the next generation, in families with more than one child is a delicate task that often times breeds conflict.
Many families make the mistake, for instance, of assuming that all members share the same values. In fact, siblings may have very different values. Birth order can play a big impact. A first-born might be raised by hard-pressed parents who are working night and day. By the time the fourth offspring reaches adulthood, the same parents may be well off and easing into retirement. So even though siblings have grown up in the same family, they may approach life as if they had been raised by different parents. Rivalry among siblings often intensifies in the family business.
While it can motivate siblings to have excellent job performances, competition also can get out of control, sparking battles that hurt the business. Certainly different personalities of children also play a big role in determining how well they get along and how much sibling rivalry occurs. Whether they like it or not, siblings in business also find themselves harnessed with their brothers and sisters in the most fragile of business relationships — the partnership. The Masters of Business Administration Dictionary defines partnership as “a merchant vessel prone to collision with other vessels, especially friendships. If partnerships tend to sink friendships, imagine their impact on sibling relationships! Children’s spouses introduce another source of conflict. Spouses often don’t know the family business well. Even if they were raised on a farm it is often times different because when their role changes so does their expectations. When their husbands or wives come into the house each night, they typically hear only about the problems, not the joys. Also, spouses may grow jealous over seeming inequities in family members’ pay and perks. As a result, even innocent in-laws may over time tend to pull the family apart.
One other opportunity for conflict arises when the goals of the retiring couple clash with the goals of the young couple who are taking over the farm. The younger generation, in general, wants to take on more risk than the older generation. Whatever the issue, you are not alone; thousands of other farm families experience this strife. Types of Justice When conflicts in family farm businesses fall within the realm of what is fair and just, they usually take on a level of intensity that makes them difficult to resolve. Perhaps it is because the children see this as the last opportunity the parents have to make things right.
Perhaps it is because the parents are aware of the finality of it. Whatever the reason, the act of passing on the family legacy packs quite a wallop! Issues of justice tend to be messy and complicated. While it is true that justice is ultimately in the “eye of the beholder”, as a first step towards untangling the issue of fair versus equal, it may be useful to review three fundamental ideas about justice, developed by Aristotle. Distributive Justice: This form of justice comes into play whenever resources and hardships have to be shared among the family members.
These issues emerge when salaries, dividends, bonuses are handed out. The core question is who should receive what share of the resources available and why should they get it? Procedural Justice: This has to do with the rights individuals have to participate in decisions that will affect their lives. The key notion is that certain decision making processes (democracy) are inherently more just than others (authoritarian), and that the way a decision is made will affect the way it is viewed as fair. Issues arise such as: *Who should be involved in estate planning decisions? (i. e. he farmer alone, the farmer and spouse, the couple and their children? ) *Who should choose a successor? Retributive Justice: This concerns issues of justice that arise whenever a decision has to be made regarding the punishment of someone. For example how does a family (or head of the family) decide how to punish a family member who has failed to perform the expected duties? Clearly, some punishments are perceived as being more just than others. People under stress tend to lump all three aspects of justice together, thus making it more difficult to understand what is the issue behind their “bone of contention”.
As a first step, try to figure out which of the three aspects of justice is at the root of a particular problem. Entitlement In a given farm family business, the member’s ideas of justice will depend on the degree to which they are treated and rewarded according to their ideas of entitlement. Entitlement, in this situation, means the expectations people have about the rewards, opportunities and resources that they believe they should receive for being part of the family and their contributions to the business.
If the members of a family feel that they are being rewarded according to the way they feel they are entitled, then they see the system as just. If, on the other hand, people are not treated according to what they feel they are entitled to, they will consider themselves to be the victims of unjust decisions. The central question, of course, is: How do people form their beliefs about what they are entitled to receive? Two classical definitions of justice shed light on this question: *The Greek definition: Justice is to treat equals equally. *The Roman definition: Justice is to give each his or her due
The first definition basically states that we feel entitled to the same treatment as those who are like us. The problem is figuring out who our equals are at a particular moment. For example one person can be a son, the first-born, the future owner, Mom’s favorite, and a family member who owns shares in the company. Unless there are clear boundaries, people will not know who their equals are and will make inappropriate comparisons. This, in turn, will lead them to feel entitled to rewards that they cannot receive. The all too familiar words will then be heard, “That’s not fair. The second definition of justice,” to give each his or her own due” alerts us to the fact that, within the “farm gates” individuals are not always seen as being entitled to equal shares of rewards. This approach explains that even though the farm couple may love their children equally, they acknowledge the fact that in regard to contributing to the farm business and to the family, the children are not equally as valuable a contributor to the farm or to the family. (Contributions to the family are often overlooked, i. e. caring for elderly parents, etc. )
When combined, these two ideas hold that for an individual to see where he or she “fits”, two conditions must be satisfied: *That the person see that he or she is being treated equally compared to others in the group to which they feel they belong, and *People look outside of their group and ask, “How is my group being treated compared to other groups that make up the family business? ” Making Sense of It All In practical terms the easiest way to make sense of these ideas is to think things through on paper. Ask yourself: *What distinct groups do we have in our family? such as siblings and parents, younger-older siblings, the “boys” and the “girls”, farm owner, passive owner) *To which category do each of the family members belong? (As a parent you could consider asking the children to answer these questions. Through this process individuals will locate where they and others within the family business “fit”. Consider Discussion at a Family Business Meeting Helping family members identify which group they belong and encouraging them to define the rights, responsibilities and privileges associated with each group, can greatly defuse conflicts that result from feelings of injustice.
Another topic for discussion could be to identify clear and shared criteria for the legitimate differences between the groups. For example, if everyone in the family agrees that a demonstrated competent manager, rather than family birth order or gender, should be the criteria for advancing in the business, feelings of injustice resulting from the differential treatment of family members are less likely to arise. Ultimately the Decision Is Yours No matter how you involve the children, the estate is yours and ultimately the decision regarding who gets what, falls on you and your spouse’s lap.
Start thinking now about the following: *Do we owe the children anything (besides what we’ve already given them)? *How much and when should it be given/sold? *What will be my conditions (if any) regarding the use and sale of the assets? *How will the sentimental value assets be distributed? *How or should we account for those items that were given to a child in years past? (wedding, car, university tuition, etc. )? *When and how will we ask the children what they want from the estate? Should we try to equalize the gifts if the farming child is getting the inheritance now, but the non-farming children won’t get their inheritance until much later? *Do the other family members who are not directly involved in the business know what we are thinking in regard to the farm? *Why are we selling the farm to that particular child/children? Could we express logical and legitimate reasons to any family member who asks? *What other resources do we have to leave the non-farming children? *What role does individual need play in these decisions? Maintaining Family Goodwill
Estate planning has many emotional implications for the people involved and can often result in family disagreements and feelings of unfair treatment. Probably everyone has heard bitter stories of hopes and promises being crushed when the will was finally read. One key to maintaining family goodwill is that no family member be surprised. This can be accomplished by open family discussion of all plans. Each person should clearly understand where he/she stands (even if the decision is not in their favor). Parents have to decide for themselves what they owe their children.
Some believe they should give away everything. Others believe in the bumper sticker that states, “I’m busy spending my children’s inheritance”. In closing, consider the thoughts of one Manitoba farmer when he said, “Start early in the lives of children explaining that fair is what Mom and Dad want to do with their estate. What is equal, is our love. ” Adapted from Achieving Fairness in the Family Business, Ivan Lansberg, Proceedings, 1989 Family Firm Institute Conference and The Final Test of Greatness, Craig E. Aronoff, and John Ward, Business Owner Resources, 1992.