The Federal Constitutional Court recently ruled that the current inheritance tax regulations are unconstitutional. The federal government has been instructed to amend the existing law by June 30, 2016. This has significant implications for all business owners who have not yet arranged for the succession of their companies. Some business owners now feel compelled to quickly find a solution for their business. In doing so, they often make hasty decisions. Frequently, certain family members are included in the succession plan, while others are not—or not to the same extent.
While this allows the business owner to realize their desired plan during their lifetime—for example, by not designating all of their descendants as successors—they must expect that the heirs who were not included will object to the final inheritance arrangement at the latest upon the owner’s death. Heirs, including, for example, children-in-law, may be entitled by law to a so-called “statutory share.” This corresponds to half of their respective statutory inheritance entitlement. Furthermore, if claimed in cash, the statutory share must be paid at market value. This can very quickly lead to a company facing financial difficulties because it is unable to raise the necessary cash within the required timeframes. Often, assets must be sold in a hurry—such as real estate essential to business operations. In such cases, sellers frequently have to accept lower sale prices, or the assets cannot be sold profitably within the short timeframe available.
Timely Succession Planning Is Wise
To prepare for such contingencies—even if there is currently broad agreement within the family—it is advisable to have all heirs sign so-called “waivers of the statutory share.” At the latest when such a waiver is on the table, previously unexpressed grievances and feelings of being treated unfairly come to light. It is therefore advisable for every business owner to address this issue openly as soon as planning for future succession begins. Only then can it be ensured that the company’s continued existence is secured and that only those whom the decedent deems suitable will continue to run the company and hold a stake in it. Professional mediation can be helpful here to ultimately ensure the company’s continued existence.
