A hastily planned internal family succession can, under certain circumstances, endanger the existence of a family business. Our author Klaus-Christian Knuffmann therefore recommends addressing all issues openly when planning the succession. Only then is it guaranteed that the company’s existence will be secured later on.

The Federal Constitutional Court recently ruled that the current inheritance tax regime is unconstitutional. The Federal Government was requested to make changes to the current law by 30 June 2016. This has significant consequences for all those entrepreneurs who have not yet regulated the succession of their business. Many entrepreneurs are now forced to quickly find a family-internal succession and a solution for their company. In the process, hasty decisions are often made. Often, certain family members are considered in the succession, but others are not or not to the same extent.

Hastily planned internal family succession can complicate generation change

In this way, the entrepreneur can realise his wishes during his lifetime and, for example, not appoint all of his descendants to the company succession. However, he must reckon with the fact that the heirs not taken into account will not agree to the closed inheritance arrangement at the latest at the time of his death. Those entitled to inherit, including e.g. the children-in-law by marriage, may be entitled to a so-called compulsory portion by law. This corresponds to half of the respective statutory inheritance claim. In addition, the claim to the compulsory portion must be paid in cash at market value. This can very quickly lead to a company getting into financial difficulties because it is not in a position to raise the necessary cash within the time limits to be observed. As a result, company owners often rush to sell assets such as real estate that is essential to the business. In the end, entrepreneurs then often accept cutbacks in the sales proceeds. On the other hand, assets cannot be sensibly disposed of in the short time available.

Timely succession planning makes sense

In order to provide for such contingencies in the case of a succession within the family, it is advisable to have all beneficiaries sign so-called waivers of the compulsory portion. This applies even if there is currently a great deal of agreement within the family. If such a waiver is on the table, previously unspoken disagreements or feelings of disadvantage come to the fore. It is therefore advisable for every entrepreneur to openly address this issue at the beginning of planning for a future succession.

Only then is it guaranteed that the company is later secured in its existence and also that only those continue to run the company and have a stake in it whom the testator feels are suitable for this. Professional mediation can be helpful here in order to ultimately secure the continuation of the company.