Wealth Management Approach | Protecting and Passing on Wealth | Preserving the family business for future generations
For business owners who are approaching retirement, a difficult challenge they may face is establishing a solid succession plan that will provide smoothly and effectively for the continuation of the business beyond the participation of its founders. The Small Business Administration, in its article, Transferring Management in the Family Owned Business, estimates that only one-third of family-owned businesses will survive the transition from the first to the second generation.
If you own a family business, as you plan to turn over the reins, the question to ask is: How can you transfer the business to your heirs; preserve the generation of income from the assets and provide liquidity, all with the least amount of tax erosion?
Elements of a succession plan
Many threads weave their way into the tapestry of a family business in transition. These include:
A family business is more than just an asset
As a business owner hands over the reins, it’s not just the monetary issues that need to be addressed. The transition of a business may have underlying emotional components as well. Your business may stand as a symbol of a lifetime of achievement, both from a professional and personal perspective, evoking a strong feeling of pride and a strong desire to protect your legacy, even if you may be forced to make difficult decisions.
Your offspring may view the transfer of the business from two perspectives - as an heir automatically entitled to a share of the business, or as someone whose talent and hard work has been instrumental in the success of the enterprise. An equal division of ownership, then, probably won’t be welcomed by offspring who have contributed to the success of the business. Any other division may be viewed as inequitable by those who weren’t involved in the operation of the business. In other words, there may be treacherous waters to navigate in order to avoid disharmony in the family.
Finally, be ready to periodically revisit what you have set in place to see if changes might be necessary.
© 2013 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2013, are not reflected in this article.
Protecting/Passing on Wealth
One of the toughest aspects of developing a financial plan or an investment strategy is recognizing how your personal style, mindset, and life situation might affect your decisions.
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