December 14, 2016
A successful family business can provide long-term financial security for you as its owner, as well as for your loved ones. To improve the chances that your company will continue to benefit your heirs after you’re gone, take steps now to keep it in the family.
Careful estate planning can ensure that a business continues to benefit family members and that ownership of the business isn’t diluted — at least until the business is ready to accept outside investors.
For example, a well-designed buy-sell agreement can prevent owners from transferring their shares outside the family, while providing the liquidity they need to exit the business. And prenuptial agreements can prevent married owners from losing a portion of their shares in a divorce.
Trusts or other mechanisms can also restrict the ability of your heirs to transfer shares. If shares are held in trust, however, it’s important to include mechanisms for providing beneficiaries with a say in the business’s affairs — particularly if they work in the business.
For instance, the trust agreement might give some or all of the beneficiaries control over how voting and other ownership rights associated with the underlying shares are exercised. Or, if the beneficiaries are minors or otherwise not ready to assume this responsibility, these rights might be exercised by a trustee, advisory board or other fiduciary (with or without input from the beneficiaries).
Considering many strategies
These are just a few broad concepts to think about when considering how your business fits into your estate plan. The important thing to bear in mind is there are many strategies to consider, some of which could become more or less appealing as time goes on and you close in on retirement. Please contact our firm to discuss your best options now — and in the future.
If you’re among the families with less exposure to estate tax liability post-TCJA, it’s time to adjust your estate planning strategy to concentrate on reducing income taxes. If state income taxes are a concern, one tool to consider is an incomplete nongrantor trust.
Family businesses often depend on their founder to maintain the company’s success. But eventually that owner will have to depart the business. Depending on the circumstances, the family itself may be thrown into chaos. A solid succession plan can help prevent this.
If you’re thinking about giving holiday gifts to employees or customers or throwing a holiday party, be sure to consider the tax consequences, both for you and for the recipients of your generosity.