Case Study

Immigrants, and in general all parents who work very hard to accumulate wealth, often want to see their offspring benefit from that wealth and own and manage it together. However, when there is a priority on minimizing taxes and less focus on finding out if the next generation wants to work together and has the interest and capability to take it on, problems often ensue. These problems can dissipate assets and engender resentment and tension in the family – putting the welfare of both at risk.

A Chinese immigrant couple came to New York City with nothing. The husband did menial labor and the wife cleaned houses. They lived simply, worked hard and saved harder. He learned to be a licensed electrician and she developed a cleaning business with employees. In the 1970’s as his contracting business grew he found a very inexpensive building to store supplies and later turned into a supply shop for other electricians.

In the same area of Manhattan, they began to buy inexpensive residential properties. Along the way they had two sons and a daughter. Meanwhile, the real estate market boomed and so did the value of their holdings. The children had peripheral experience in managing the properties. All went to college.

When the children were in their late twenties and early thirties, the parents hired an expert in transitioning wealth from a strategic tax perspective – legally avoiding taxes was paramount. With almost no communication directly with the kids, the parents were about to complete some sophisticated and time-consuming planning. Before signing, they sat the kids down to tell them that the first phase would be $30MM in buildings gifted to them directly.

One of the children thanked the parents profusely for their generosity and politely suggested that they might have discussed this more, and expressed concern that the siblings had varying levels of experience and interest in the daily operations. They were not all close and some significant tensions existed that would make close coordination of shared assets quite challenging. This child had an MBA specializing in real estate and had taken courses specifically addressing family business dynamics and governance. She suggested they find an expert to help sort things out.

The family contacted and interviewed Jeff and decided to engage him.

Main themes and interventions:
  • Jeff interviewed the parents and the three siblings and the spouse of the one married sibling. It became clear that the father was ill and wanted to be done with daily work responsibilities. The mother was the leader of the family and a very strong business person. Both parents had a dream of the kids owning and working together. They were also aware of conflict between one of the kids and the other two and had hoped they could deal with this through an intricate estate plan.
  • Jeff brought the family together for an education and feedback meeting. The educational part focused on getting the family to understand the basic needs and typical dynamics of family businesses. The family dynamics feedback was gentle yet direct and primarily focused on the parents’ generosity and desire to help kids get along. While their hearts were in the right place, they skipped tough family conversations and long-term development of the next generation. Instead of working with children who had strong interest, they tried to take a shortcut by way of “papering up” with a technical professional, hoping these documents would ensure the children work and own together effectively and peacefully. Together the family came to see both the loving intentions of the parents – and the missed opportunities to set things up better.
  • Through skilled facilitation and with difficult though fruitful conversations, the siblings came to terms with the fact that two were very close and wanted to work and own together, and the third was more of a loner. He had friends outside the family and a desire to travel and not be burdened with daily real estate management responsibilities.
  • A meeting with the family, Jeff and the estate/tax expert was convened. This expert was clear that his task was to transfer the assets to the children, as requested by his clients (the parents), while minimizing tax liabilities as the priority.
  • This professional noted before and during this meeting that there were many family elements that needed to be addressed. He had foreseen the problems for the family and tried to slow the parents down and get them to seek expertise. They had refused. In this meeting, options were presented for various alternate scenarios depending on how the siblings wanted to sort out owning and working together – or not. The parents were willing to sell the buildings outright and split the proceeds into thirds if this is what the siblings wanted based on their new understanding of all the dynamics.
  • Jeff worked in depth with the siblings over a couple of months to dig deep into various scenarios. All three siblings agreed that since the buildings had no debt and were quickly increasing in value, they wanted to keep them. The two close siblings wanted to learn how they could leverage the equity in the buildings and do entrepreneurial ventures together, while doing it in a way that would be fair to their sibling. Jeff coordinated a variety of professionals to form a team with the expertise to advise on these options.
  • As the siblings firmed up their vision and operational details, Jeff helped them clarify and formalize roles and responsibilities so that expectations would be aligned. He also helped them to come up with a compensation plan for owners as well as a different compensation plan for operators based on time put in and market value of the role.
  • Jeff and the siblings developed operating principles – guidelines for how they would work together and treat each other. Also, they articulated a process for how decisions would be made. Jeff checked in periodically to make sure siblings were on track and to coach and facilitate as needed.

*Identifying details have been changed to protect client privacy.