Family Business: Preserving Your Legacy for Generations to Come
Summary: Family Business: Preserving Your Legacy for Generations to Come
More than 70 percent of family businesses do not survive the transition to the next generation. Ensuring your family does not fall victim to the same fate requires a unique combination of proper estate and tax planning, business acumen and common-sense communication with those closest to you. Below are some steps you can take today to make sure your family business continues from generation to generation:
- Meet with an estate planning attorney to develop a comprehensive plan that accounts for issues related to both the transfer of your assets and estate taxes.
- Involve all family members in establishing a business succession plan to transfer ownership and control to the younger generation.Include in-laws or other non-blood relatives in these discussions.They offer a fresh perspective and may have talents and skills that will help the company.
- Make sure your succession plan includes: preserving and enhancing “institutional memory”, who will own the company, advisors who can aid the transition team and ensure continuity, who will oversee day-to-day operations, provisions for heirs who are not directly involved in the business, tax saving strategies, education and training of family members who will take over the company and key employees.
- Discuss your estate plan and business succession plan with your family members and key employees.Make sure everyone shares the same basic understanding. Plan for liquidity.Ensure the business has enough cash flow to pay taxes or buy out a deceased owner’s share of the company.Estate taxes are based on the full value of your estate.If your estate is asset-rich and cash-poor, your heirs may be forced to liquidate assets to cover the taxes; thus, removing your “family” from the business.
- Implement a family employment plan to establish policies and procedures regarding when and how family members will be hired, who will supervise them, and how compensation will be determined.
- Have a buy-sell agreement in place to govern the future sale or transfer of shares of stock held by employees or family members.
Add independent professionals to your board of directors.
You’ve worked very hard over your lifetime to build your family-owned enterprise. This is the time to focus your priorities on ensuring a smooth transition that preserves your legacy – and your investment – for generations to come.
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