Contesting a family business succession plan

On Behalf of | Aug 24, 2020 | Will and Trust Contests

Passing a business along from parents to children takes a great deal of thought. It also takes clear communication, a willingness to listen and accountability. There are many scenarios where the children will not feel they have gotten the best possible deal when it comes time to move the business into the hands of the next generation.

For example, suppose you have four children. Each one has worked in the business at one time or another, but only one seems committed to working there long-term. Should you divide the company equally between all four children or focus the business assets on the one who has taken on a larger role? Sometimes equal divisions aren’t fair.

If you leave the business to that single child, you might leave assets of equal value to the other kids. But this could mean the children who aren’t involved in the company get liquid assets upon your death, while the child working in the company gets an illiquid asset. To the new business owner, it may feel like the others got a better deal.

How do you resolve a contested business succession?

If you are the beneficiary of a business succession plan, you may not like the way the business was divided. You may feel it could have been handled better. It may not seem fair.

Should you contest the plan? Doing so could create friction among the family and uncertainty in the business. Litigation could also take resources you don’t care to spend or even reduce the value of the company.

Moreover, you may not have grounds to challenge the will or succession plan. In order to challenge it in court, you will need to show legal grounds, such as:

  • Invalidity of the will or plan (the will or plan does not comply with California law)
  • Lack of testamentary capacity (the person who wrote the will was not of sound mind)
  • Undue influence by someone named in the will
  • Fraud (the person who wrote the will was tricked)

Generally, if you do not have legal grounds to challenge the will, you will need to look for another solution. That could involve negotiation and settlement, but you might have to file a lawsuit first.

The first thing to do if you are unhappy with a business succession plan is to talk to an attorney. Your lawyer can tell you if you have grounds to challenge the will or business succession plan as well as what other options you may have if is not an obvious strategy.

If there is precedent to move forward, you may be able to file a lawsuit to contest the will or plan. This could be somewhat complicated and time-consuming, but it is also possible to settle the matter out of court.

Working with your attorney, you can approach the other people included in the will or business succession plan and propose an agreement to change the way the business is being divided. Be prepared for some push and pull, as others may be satisfied with the existing arrangement.

If no agreement can be reached, you can pursue your claim in court. This could result in the will or plan being held invalid and the assets being distributed according to state law.