Leasing Key Assets to the Business as a Creative Solution to Provide for Children Inactive in the Business

As it can create a variety of challenges for both the effective administration of the business as well as the ongoing relationship between children active and inactive in the business, business owners often see the value of transferring business interests to the children active in the business, while transferring other assets to children not active in the business.  But what happens when the business is a very substantial asset in the business owner’s estate, and the business owner cannot treat all the children equally without transferring business interests to the children not active in the business?

Under these circumstances, it can sometimes be a part of the solution to transfer certain assets, such as real estate, to the inactive children and provide for a long-term lease of such assets by the business.  Not infrequently, business owners may lease certain key assets, such as real estate and equipment, to the business.  Providing for the transfer of such assets to the inactive children, and potentially providing for a long-term lease of such assets by the business, may:

  1. permit assets associated with the business and an important part of the business owner’s estate to be transferred to the inactive children;
  2. permit actual ownership interests in the business to be transferred exclusively (or to a greater extent) to children active in the business; and
  3. minimize sources of tension between active and inactive children as to the ongoing administration of the business by the participating children.

[Legal advice not only involves an understanding of the law, but the application of the law to a particular set of circumstances or facts.  Typically blog posts are imperfect tools to address the subtlety and exceptions of the law that may apply in particular situations.  As a result, the information in this blog post does not represent legal advice.  If you are in a situation where you need or desire legal advice, we would be happy to help.  Check out our Contact Us page, and feel free to set-up a no-charge initial consultation.]