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Family Business Estate Planning: 5 Steps to Success Thumbnail

Family Business Estate Planning: 5 Steps to Success

By: Brannon J. Fisher, CFP®

Estate planning is important for everyone, but it’s especially critical for owners of family businesses. It’s vital to plan for how your business interests will be passed on to your beneficiaries, as well as who will assume leadership roles in the family business after you’re gone.

Unfortunately, some family business owners put estate planning on the back burner for too long. Perhaps they’re worried about disrupting family relationships, or maybe they simply don’t want to think about their own mortality. Procrastination can lead to big problems later if you haven’t planned for how your business will transition to the next generation.

Family Business Succession Statistics

When it comes to family business estate planning and succession the statistics aren’t encouraging. Only three out of 10 family-owned businesses make the transition from the first to the second generation and just 12% make it to the third generation. Just 3% are transferred to a fourth generation and beyond.

One of the keys to successful family business estate planning is creating a formal succession plan. This plan will identify one or more family members who will take over leadership of the business and specify a timeline for when the transition will take place. A succession plan will also detail how your business ownership shares will be transferred to your beneficiaries.

A common question is when should family business estate planning start? The short answer: It’s never too early to start the process of estate planning. The sooner you get started, the more time you’ll have to identify and train new leadership, transition client and vendor relationships, and start easing yourself out of day-to-day business operations.

Best Practices for Family Business Estate Planning

Here are 5 best practices to help you get started with family business estate and succession planning.

  1. Ensure open communication with all family members. Communication is critical with family business succession because things can get emotional, and feelings can easily get hurt. For example, if two or more family members are working in the business, the ones who aren’t chosen as the new leader might be resentful. Open and honest communication is important to minimizing hurt feelings due to unmet expectations.
  2. Find out if a family member is willing and able to lead the business. “Willing” and “able” are two different things. First, you must determine if there is a family member who wants to take over leadership. If there is, you must determine if he or she is qualified for the job. If not, one solution might be to promote or hire a non-family employee to take over management and operations. Family members can then assume business ownership in a non-decision-making capacity.
  3. Start training your successor as soon as possible. Once you’ve identified a successor, you must start preparing them to assume leadership by teaching them everything he or she will need to know to be successful. Get your successor involved in strategic planning and decision making early. Resist the urge to veto decisions you disagree with — it’s better to let your successor make mistakes now and learn from them rather than later when you’re no longer around to help them course-correct.
  4. Consider tax consequences. Tax planning is an important but often overlooked part of family business estate planning. There are lots of potential tax and estate planning consequences associated with the transfer of a family business to beneficiaries. In a worst-case scenario, family members might have to liquidate company assets to pay estate taxes. Planning early and ensuring that your business entity has the correct legal formation (such as an LLC or an S Corporation) can help reduce estate and other business transfer taxes. If your business is growing, you may wish to transfer interests to your beneficiaries sooner rather than later. By moving assets out of your estate, you can minimize the transfer tax.
  5. Assemble a quality team of advisors. Fortunately, you don’t have to go through this process on your own. There are a number of professional advisors who can help you create a family business estate plan that’s right for your situation, including your financial advisor, attorney, accountant, banker and board members. These professionals can bring an objective perspective and share best practices they’ve learned working with other family businesses like yours.

How a Financial Advisor Can Help

Open communication with family members and leadership training for your successors are the hallmarks of a successful family business estate plan. Family businesses are as unique as the individuals who work within them, and it is wise to customize a plan tailored to your family’s situation. A Simon Quick advisor can work with you to create a family business estate plan that addresses your top concerns. Contact us at (973) 525-1000 or send an email to info@simonquickadvisors.com to discuss your particular situation.

About Brannon Fisher, CFP®

Brannon joined Simon Quick in April of 2019 and helped extend the firm’s reach into the Rocky Mountain region by establishing an office in Denver. He is responsible for new business development and works closely with the New Jersey-based Client Advisory teams to provide ongoing services to our valued clients. Brannon holds degrees from Colgate University, CU-Boulder, and Dominican University of California. He remains involved with higher education by volunteering for Greenhouse Scholars as a mentor, career advisor and selection committee member. Brannon, his wife Mandy, and his daughters Waverly and Layla enjoy a variety of active outdoor pursuits and host a revolving cast of foster pets for Mandy’s nonprofit animal rescue, Old Dogs New Digs. To learn more about Brannon, connect with him on LinkedIn.


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