I am in my 60’s and spent a lifetime building a successful business. What pitfalls should I look to avoid in estate and succession planning?
According to statistics, family-owned businesses account for 78 percent of all job creation, 60 percent of the nation’s employment, and a staggering one half of the nation’s entire gross domestic product. For small business owners, relinquishing or expanding control of the enterprise can be an unnerving thought – but one worth having. The following are five general issues to consider when thinking about family business succession and estate planning:
#5: Management Transition: Don’t panic – management transition does not necessarily mean giving up ownership of the business outright. Instead, this concept refers to the change in responsibility over the day-to-day operations, which may be a welcome adjustment after decades of 80-hour work weeks!
#4: Considering a Buy-Sell Agreement: A buy-sell agreement is a contract entered into between multiple owners of a company. If this applies to your structure, this agreement coupled with a value-congruent life insurance policy can help plan for the major triggering events often contemplated, including death, disability, or divorce.
#3: Reducing Tax Liability & Liquidity: Estate tax + illiquidity = nightmare. In other words, a highly-leveraged company or one without much cash on hand could be forced into a fire sale to reduce estate tax exposure in the event of the sudden death of the owner(s). Proper pre-planning with an attorney and/or tax professional can help avoid this disastrous result and keep the family business where it belongs: in the family.
#2: Ownership Changeover: A comprehensive succession plan must include provisions for the change of ownership. As difficult as it may be for a founding owner to relinquish the reins, it is vital to ensure that in the event of an unexpected death or disability, the plans moving forward are clear and concise. Otherwise, turmoil, conflict and litigation will inevitably ensue.
#1: Integration of Personal and Business Estate Planning: For small business owners, the personal and business estate plans should not only refer to one another, but must be consistent and not contradictory. Too often, testators leave their entire estate to one child, only to leave the business to another child in a separate succession plan. This conflict will inevitably invite confusion, and potential hostility.
If you are one of the millions of Americans owning a small business, please contact Las Vegas business succession planning attorneys at the Stone Law Offices today: 877-905-0890.