Picture this scenario: A successful business owner has spent decades building his company, and now his two adult sons are involved in the operation. One son is clearly positioned to take over as CEO, while the other plays a more supportive role. The father wants to be “fair” to both sons, but isn’t sure what that means in practice—should he split ownership equally?
How does he balance family relationships with business realities?
If you’re a family business owner, this hypothetical situation probably sounds familiar. You might be facing similar questions right now, or you know it’s a conversation you’ll need to have in the coming years. At Gatewood Wealth Solutions, we regularly work with families navigating these exact challenges, and this scenario illustrates why succession planning is about much more than just deciding who gets what—it’s about preserving both business success and family harmony.
The Challenge: When “Fair” Isn’t “Equal”
In our hypothetical family, the father initially thinks the solution is simple: split ownership equally between his two sons. After all, he loves them both equally, so equal ownership seems fair. But as we dig deeper with clients facing this situation, it becomes clear that “equal” might not actually be “fair.”
The son stepping into the CEO role would be carrying the day-to-day responsibility for the business, making tough decisions, and being accountable for results. The other son, while contributing to the business, wouldn’t be taking on the same level of responsibility or risk. Equal ownership could potentially create resentment on both sides—the CEO son feeling he’s doing more work for the same reward, and the other son feeling pressured to justify his ownership stake.
This dilemma highlights one of the most crucial questions in family business succession: How do you balance family relationships with business realities? As a Certified Exit Planning Advisor (CEPA), I’ve seen how this tension plays out in countless families, and there are proven strategies to address it.
The Questions That Matter Most
When Gatewood works with families in situations like this, we help them identify several critical questions that every family business should address:
About the transition itself:
- What does success look like for both the business and family relationships?
- How will the outgoing leader balance ongoing involvement with giving the next generation room to lead?
- What specific milestones or accomplishments need to happen before the transition feels complete?
About ownership and control:
- Should ownership be equal, or should it reflect each person’s involvement and contribution?
- How will major decisions be made if ownership is split?
- What happens if one owner wants liquidity in the future?
About the founder’s retirement:
- How will the founder fund his retirement lifestyle?
- Does he want to remain involved in an advisory capacity, or make a clean break?
- What legacy goals are tied to the business?
These aren’t just theoretical questions—they’re the foundation of every sound succession plan we develop at Gatewood.
The Hidden Landmines
Our team’s deep bench of experience has shown us that family business successions often fail not because of poor financial planning, but because of unaddressed emotional and structural issues. Here are the most common pitfalls we help families avoid:
- The Authority Trap: The new CEO expects to run the business with clear authority, but family members with equal ownership still want significant say in decisions. This creates operational paralysis and undermines leadership credibility.
- The Liquidity Time Bomb: If ownership is split equally but only one family member works in the business, the passive owner may eventually want to cash out. Without a funding plan, this can force distributions that strain cash flow or require the active owner to buy out siblings at potentially difficult times.
- The Vision Conflict: The founder built the business with his own style and risk tolerance. The next generation may want to modernize or grow more aggressively, creating conflicts about reinvestment versus distributions.
- The Emotional Undercurrent: Old family dynamics—who was the favorite, who was more responsible, who needed more support—can surface during succession planning and destabilize both business operations and family relationships.
At Gatewood, we’ve developed frameworks to help families identify and address these issues before they become problems.
A Better Approach: Structure Meets Heart
Let’s return to our hypothetical family and explore how Gatewood might advise them to structure their succession plan:
- Differentiated Ownership Structure: The son taking over as CEO would receive a larger ownership stake, reflecting his greater responsibility and risk. The other son would receive a meaningful but smaller stake, plus additional compensation for his ongoing contributions.
- Clear Governance: We’d help them establish a formal board structure with defined decision-making protocols, including which decisions require unanimous consent and which can be made by the CEO alone.
- Liquidity Planning: We’d create a structured buyout mechanism funded by life insurance and retained earnings, so if either son ever wanted to exit, there would be a clear, funded path that wouldn’t disrupt operations.
- Founder Transition: Dad would structure his retirement income through a combination of consulting fees for the first few years and ongoing distributions from his retained ownership stake.
This type of comprehensive planning is what we do every day at Gatewood—combining technical expertise with an understanding of family dynamics to create solutions that work for everyone involved.
The Roadmap Forward
If your family is facing a similar transition, here’s where Gatewood typically recommends starting:
- Get Professional Help Early: This isn’t just about legal documents—you need advisors who understand both the technical and emotional aspects of family business transitions. Our team’s diverse expertise allows us to address every aspect of succession planning.
- Have the Hard Conversations: Don’t avoid difficult topics hoping they’ll resolve themselves. Address expectations, fears, and concerns directly. We often facilitate these conversations to help families navigate sensitive territory.
- Plan for Multiple Scenarios: What if the chosen successor becomes disabled? What if family members have a serious disagreement? What if someone wants to sell their stake? Our exit planning process considers all these possibilities.
- Focus on Communication: Establish regular family business meetings separate from operational discussions. Create safe spaces for honest dialogue about both business and family concerns.
- Think Beyond Taxes: While tax efficiency is important, don’t let it drive decisions that create family discord or business dysfunction. Gatewood takes a holistic approach that considers all aspects of wealth transfer.
The Ultimate Goal
Imagine our hypothetical family one year after implementing their succession plan. The business is thriving, the brothers are working well together, and Dad is enjoying his newfound freedom while still feeling connected to the enterprise he built.
Their success wouldn’t come from finding the perfect legal structure or tax strategy—it would come from honest communication, careful planning, and a willingness to address both the business and emotional aspects of succession. This is exactly the type of outcome we help families pursue at Gatewood Wealth Solutions.
Remember, family business succession isn’t just about transferring ownership—it’s about preserving what matters most: the business that supports your family and the relationships that define it. When done thoughtfully, succession planning can actually strengthen both the enterprise and the family legacy for generations to come.
The key is starting the conversation before you need to. Don’t wait until retirement is imminent or health issues force the decision. The families who navigate succession most successfully are those who begin planning early, communicate openly, and get professional guidance to help them through the process.
Why Choose Gatewood?
At Gatewood Wealth Solutions, we understand that every family business is unique, but the challenges are remarkably similar. My background as a Certified Exit Planning Advisor, combined with our team’s deep bench of expertise, allows us to provide comprehensive solutions that address both the technical and emotional aspects of succession planning.
We don’t just create plans—we help families implement them in a way that honors their legacy. Our holistic approach considers your business operations, family dynamics, tax implications, and personal goals to create a succession strategy that works for everyone involved.
If you’re a family business owner facing succession planning questions, or if you know these conversations are on the horizon, the time to start planning is now. Your future self—and your family—will thank you for it.
About the Author
Jared Freese, CFP®, CLU®, CEPA, ChFC®, is a Wealth Advisor Manager for Gatewood Wealth Solutions, specializing in family business succession planning and wealth transfer strategies. He helps families navigate the complex intersection of business operations, family dynamics, and financial planning that aims to ensure successful transitions across generations.
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This is a hypothetical example and is not representative of any specific investment. Your results may vary.
