It is easy to burn out when you are responsible for providing full-time care to an aging or disabled loved one.
Where many succession plans go off the rails, is when they focus solely on the economics of the business. That may work fine for a corporation, but for a family business, the dynamics and relationships of the family members must be taken into consideration, when planning for succession.
It’s hard not to have some kind of preferential treatment, if some members of the family are working the land, says North Bay Business Journal’s article, “How to plan for a smooth transition of your family business,” while others have left the area in pursuit of a different lifestyle. Does a non-farming adult child get an equal share in a family vote or inheritance? On the other hand, why should they be penalized for wanting a different life?
A crucial step in handling family dynamics is calling a meeting with everyone to discuss what’s going on with their business. A family meeting is an opportunity to discuss decisions with family members with reduced conflict and confusion.
To have a successful business succession plan, start with a business plan for the business. Next move to both financial planning and estate planning, especially estate planning for the current owner. You should then do tax planning around all of that.
Addressing the tax exposure is a challenge faced by those transferring assets. There are some tax issues with estate planning and asset transfer, unless it’s done during life. Transferring a business, or other assets when the owner is still alive, can be beneficial in the long run. Lifetime gifts can be a way to reduce estate taxes, because making a gift today before there’s been substantial appreciation is a way to leverage your gift and estate tax exemption.
A parent who transfers assets while still alive, would have to be willing to say goodbye to the income from an asset.
However, that doesn’t necessarily mean giving up control of the business. The process of transferring control of a business can benefit from a gradual approach. If you want to transfer the business to one or more of your children, but you want them to succeed on their own, you could bring them into the business as a manager and give them a little bit of ownership.
The plan for successful succession begins by with a broader vision of what the desired outcome will be. An experienced estate planning attorney who has helped many families transition from one generation to the next, can be a major asset. They’ll be able to help you and your family create a plan that makes sense from a wealth transfer and tax planning perspective. Don’t be surprised if it takes several years to create and execute a plan.
Reference: North Bay Business Journal (April 9, 2019) “How to plan for a smooth transition of your family business”