Planning for the Succession of Your Small Business

A recent Forbes article reported that while most family business owners do have estate plans, many do not update their estate plans regularly. Many circumstances can change over just the course of a few years, which makes a regular review of any estate plan necessary in order to capture planning opportunities and evaluate risk. For small business owners, it is also a good way to review their family business succession plan, which can help ensure the continuity of their business assets, manage tax liability, and avoid dilemmas that typically occur in closely held family enterprises.

 

Business Succession and Estate Planning

 

For many family business owners their business not only represents their greatest source of wealth, it represents a heritage and opportunity for the next generation. As such, family business owners have a strong motivation and obligation to plan for the transfer of their business assets. By not implementing a business succession plan, the value created over so many years will be at risk. Depending on the size of the business and other sources of wealth, failing to plan over the long term can create a greater potential for estate tax liability and put the family business at risk in the event of an unplanned transition. For these reasons, family business owners should create and continuously monitor a business succession strategy as part of their estate planning process.

 

Decisions in Business Succession Planning

 

If you are a family business owner, there are a few questions you can consider to begin shaping your business succession plan. The first question to consider is whether you will sell your family business and distribute the proceeds of the sale, or transfer control to other members of your family? If you do plan on keeping the business in the family, who are you going to have run the business, and who will have ultimate control if there are multiple family members participating in the operation? Answering these basic questions will provide your business succession and estate plan with direction and provide your estate planning attorney with enough information to start building a strategy for planning your estate and business exit plan.

 

Executing a Business Succession as Part of Your Estate Plan
With your goals refined you can begin the execution of your business succession plan, which will take place over the course of many years. Over that period of time, you will have several estate planning opportunities to execute your strategy. Depending on your needs and the size of business and estate your estate planning attorney can advise you how to use tools such as buy/sell agreements, annual gifting, special purpose entities, valuation strategies, life insurance planning, and the utilization of trusts. There are many options to consider, but waiting until it is too late is not one of them. That is why you should begin thinking about the future of your family business today.

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