Estate Plan Challenge Ends in Santa Claus, While Family Trust Dispute Is Headed To Trial in Sydney

A Lesson from the Royals: Succession Is a Two-Way Street (opens in new window)

Ginia, the youngest Rinehart family member, unsuccessfully tried to keep her family out of court. The trial begins 8 October.
(The Sydney Morning Herald opens in new window)

Two family battles taking place on opposite hemispheres were back in court this week, with one feud reaching its conclusion and the other having the date set for a trial to begin.

The Koch family, owners of Holiday World & Splashin’ Safari in Santa Claus, Indiana, had their legal dispute resolved when an appellate judge affirmed a lower court decision in favor of the late majority owner’s estate.

The Koch family dispute arose from a mandatory stock purchase agreement created by the three sibling owners of a successful amusement park, established in 1946 by their grandfather Louis J. Koch, in case one of the three family members passed away.

Family Business Succession Plans Suddenly in Force

Just a few months after Natalie Koch sold her almost-one-third stake of the family business to her brother Will, which made him the majority shareholder with 60% of the shares and her brother Dan a 40% minority partner, Will unexpectedly died in the prime of his life.

The courts found that Dan Koch materially breached the binding agreement, which went into affect upon Will’s death and had enforceable time-specific deadlines based on the date of death.

By violating the family agreement, Dan lost his opportunity to acquire control of the business his grandfather started to his sister-in-law Lori. Will’s widow and children, though still family members, have gained control of a business despite the intentions of the three siblings who signed the mandatory stock purchase agreement.

The lesson here is that when you sign documents about the succession of a family business, you definitely need to operate within the terms of that agreement or the courts may prevent you from fulfilling your intentions.

Another lesson, perhaps even more important (because you should always follow legal contracts to the letter of the law), is that spouses have a huge impact on family dynamics and the eventual distribution of estates and family businesses, so it is essential to build and maintain family harmony with all members – especially non-blood relations who bring their own family and agenda into a marriage.

Family Trust Private Battle Will Be Fought In Public

On the other side of the world, the battle over the Rinehart family’s billion-dollar Hope Margaret Hancock Trust continues to be fought in the unflattering light of the public stage. The trust was established by the controversial iron ore magnet Lang Hancock.

The attempt to have the fight moved to private arbitration by the family’s youngest member, Ginia Rinehart (perhaps the only family member with any common sense), was rejected by a judge. The very public trial begins 8 October in Sydney, Australia.

This case also illustrates the need for family harmony, but in this instance the real problem here is that Ginia’s mother Gina was appointed as trustee of the family trust, which gave her an inordinate amount of control over other family members.

Appointing a family member as the trustee of a family trust cannot help but to dramatically impact the relationship between family members, the rest of whom are now, as trust beneficiaries, are beholden to that new decision-maker with whom they may not always agree.

Changing the dynamics of family relationships by assigning one member as trustee is unavoidable, so it is best to avoid that situation by choosing a professional trustee who is trained and experienced in handling all of the responsibilities of the position. Gina Rinehart obviously learned that lesson, though a little too late, because one of this week’s legal proceedings included her request to be replaced as trustee of the family’s trust.

Only time will tell if the self-inflicted wound sustained by the Rinehart family can ever heal, but even if it does it will surely leave a very noticeable scar that will always be present.

Family Communication and Common Goals Needed

Both of these family fights may have been avoided had there been better lines of communication established earlier, so that when tragic unexpected circumstances arose a formal process and common family goals existed to help guide the family safely through troubled waters to a calm port of understanding, composure, and compromise.

These examples of troubled families illustrate, when you create your estate plan, how easily your best intentions can be undermined by your family, if they are not properly prepared to assume the role and handle the responsibility they eventually will assume.

Louis Koch and Lang Hancock were both successful men who built strong family businesses, but they may have failed to build strong families, which has already negatively affected their heirs and may soon have the same unintended impact on their legacy and long-term contribution to society.

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