Who will work in the business? Who will control the business? There are many, many more questions.
Passing on a family business isn’t as simple as selling your business, because it isn’t just financials and operations that must be considered. It would be very wise to consider the family dynamics in order for the situations to proceed as peacefully as possible, according to the North Bay Business Journal in “How to plan for a smooth transition of your family business.”
Estate planning attorneys can serve as sounding boards in creating a balance between what will be best for the business and what will work to maintain peace and cohesiveness in the family. With experience in guiding families through this process, they are able to provide an unbiased view and can be helpful, when hard decisions need to be made.
Another part of the plan is having the family and the estate planning attorney meet with other professionals, such as a wealth manager and CPAs. This is especially helpful when the owners are reluctant to talk about what is happening in the business with their children, before clarifying their own thoughts about the business.
Taking time to step back and gain some perspective before holding a family meeting where decisions are made, will give the owners more clarity.
A succession plan often starts a business plan. Once there is a plan for the future of the business, it’s an easier transition to financial and estate planning. Taking these steps can help the business’ success. Any business will run better when the numbers and projections for future growth are in place. Banks and other lenders look favorably on a company that has its financial reports in place.
This also permits tax planning to be done properly. In some cases, transferring a business or other asset, while the owner is still living can be beneficial in the long run, even with today’s higher federal estate tax exemptions.
Lifetime gifts can be a way to reduce estate taxes because making a gift today before there has been substantial appreciation, is one way to leverage the gift and estate tax exemption. Let’s say an asset is valued at $1 million, but at the time of your death it may be valued at $8 million. By giving it today, you can use less of your lifetime exemption.
To transfer the business to one or more children and give them an opportunity to succeed on their own, through their own efforts, consider bringing them in as a responsible manager with some ownership.
A gradual approach in transferring control of a business is a wise move, experts say.
An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and may include passing on a family business.
Reference: North Bay Business Journal (April 9, 2019) “How to plan for a smooth transition of your family business”