Sibling Dynamics

When parents work with adult children in a family business, sibling rivalries can emerge. Parental favoritism, whether intentional or not, can exacerbate these issues. For example, when a parent gives more responsibility or higher compensation to a child based on talent or commitment, it may cause resentment among siblings. To mitigate this:

• Implement performance-based rewards systems
• Regularly review and adjust responsibilities and compensation
• Maintain open communication channels to address concerns

Equitable Treatment

Treating all children fairly while running a successful business can be challenging. Consider these strategies:

• Explore alternative compensation structures
• Ensure job titles accurately reflect roles and responsibilities
• Be transparent about decision-making processes

Important: Keep titles accurate and avoid using them to placate family members, as the IRS uses titles to determine pay equity during audits.

Employment Classification

Carefully consider whether family members should be classified as employees or independent contractors:

• Independent contractor status can reduce payroll taxes
• This classification works well for family members who prefer autonomy
• Ensure compliance with IRS guidelines when classifying workers

Succession Planning

Preparing for leadership transition is crucial:

• Create a clear exit plan with a defined timeline
• Regularly reevaluate and update the succession plan
• Involve the board and get agreements in writing

Dealing with Disinterest

When adult children show no interest in the family business:

• Respect their decisions and avoid pressuring them to join
• Consider alternative succession plans, such as selling the business or bringing in non-family management

This posting is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this posting should not be acted upon without specific professional guidance. Please call us if you have questions.