Posted by: The Life and Legacy Planning Group
Owning your own business can be a great endeavor that takes a lot of passion and drive. Many small business owners focus on the day-to-day management and growth of the business, rather than thinking about a time when they may no longer be in the business. This is a far too common mistake. Future plans for your enterprise are even more important when one child works in the business but the others do not. Keeping the peace among your children after you are no longer able to participate in the business requires careful balancing of your estate plan.
Before considering whether or not to pass your business to the next generation – as opposed to selling it to a third party – make sure at least one of your children has the capability, and is willing, to run the company. Once that has been established, then early planning is the next step to ensuring the best outcome. Ideally, succession planning should start at least five years before you decide to retire. And because life is unpredictable – you may become incapacitated or pass away without warning – the best time to start planning is now. There are several things to consider when planning for business succession, especially if not all of your children are involved. It is important to keep in mind that treating your children fairly does not necessarily mean you will treat them equally when it comes to your estate planning. For this reason, being proactive will make sure your desires will be followed even after you can no longer run your company.
Factors to Consider
First, minimizing the risk of conflict among your children once you are gone requires a mindful weighing of your estate, your successor trustee, and other aspects of your estate plan, to ensure that your wishes are recorded and can be easily followed.
Second, you must consider the value of the business, as well as control and management issues. This can be done by clearly identifying the roles and responsibilities of your successor in a written plan.
Third, if you have a sizeable estate, there are financial strategies that a knowledgeable estate planning professional can use to equalize distributions. This can also be done with other assets such as IRAs, 401(k) plans, investment real estate, life insurance, stocks, bonds, and/or mutual funds, etc.
Finally, an estate planning professional can analyze how the business is capitalized in order to ensure that your estate plan is equitable as it concerns your children – whatever you consider to be equitable in your particular circumstance. Notably, how your business is organized has a direct effect on how it is treated, taxed, and administered upon your death.
Don’t Leave It To Chance
Ignoring or delaying estate planning for your business is not financially prudent. As a successful business owner who already has the next generation involved in the company, you must take charge of the future so that the fruits of your hard work can continue on. More important, clearly writing down your desires will help keep your family from bickering – or worse resorting to litigation – a likely result if you just leave the business’ future to chance. Give us a call today, so we can craft an estate plan that will allow your business to continue to thrive for generations to come.