Dealing with Estate Planning When You Own a Business - BB&K's Craig Marshall Offers Insight On Dealing with Sticky Situations


Creating a will or living trust can raise complicated and thorny family issues when figuring out how to divvy up assets at death. Toss a family-owned business into the mix, and it ramps up those and other planning issues to another level.

Does a son or daughter have the interest as well as the right experience and skill level to carry on the family business? If so, how do you equalize the rest of the estate among the other children? If not, will your family have enough liquid assets to hire someone to run the business?

What happens when you have a blended family and step-children are involved? What if your business partner is not a relative and you want to make certain that your family is treated fairly while still protecting that loyal partner?

Should you just plan to have the business sold after you are gone and divide the proceeds among your beneficiaries? It may seem akin to deciding what to do with the family home. Do you sell the home and divide the cash among the children, or do you let one child who wants to live in the home buy out the others?

With a business, however, the planning can be significantly more complex.

A family business owners certainly not alone in this predicament. Some 35 percent of Fortune 500 companies are family-controlled, according to statistics reported by the University of Southern Maine’s Institute for Family-Owned Business.

Wal-Mart, News Corp and Ford Motor are just a few of the big names. And it’s not always easy for them.

In California, the matriarch of the In-N-Out Burger chain had already experienced the death of her two sons. So Esther Snyder decided to leave the Irvine-based company to her only living blood heir, her granddaughter who was 23 when the matriarch died at 86. Passing the torch did not come easily nor without various back-and-forth legal challenges by a company executive and co-trustee of the Snyder family trusts. Despite all of that, the granddaughter now controls the restaurant chain through a trust that gave her half ownership when she turned 30 in 2012, and will give her full control when she turns 35.

While there are complex legal and estate tax issues to consider when a family business is part of an estate plan, it’s important for a business owner to be comfortable with the practical implications of a proposed succession strategy and communicate the same to the family. A conversation with family members can help avoid future surprises or conflicts in many instances by airing issues early on and helping you appreciate where everyone stands in terms of carrying on the business. Also, family members may gain a better understanding of your desires and expectations.

Here are a few additional thoughts to consider:

Besides death, a business owner should consider other potential events that may impact the business, such as disability, incapacity, retirement or bankruptcy. An effective way to handle these issues is with a well-prepared, buy-sell agreement among the owners.

A business owner can transfer ownership of almost the entire business to the next generation before death while still maintaining control over business decisions. The earlier a business owner transfers a business, the lower the estate and gift tax risks.

Often times, a comprehensive estate and business succession plan for a business owner will involve a team of professionals such as an estate planning attorney, accountant, an insurance agent and a financial adviser.

As proud as you are about the business you’ve built, it’s unlikely it will stay in the family for very long without proper planning. Only 40 percent of family-owned businesses survive to the second generation, 12 percent to the third and 3 percent to the fourth. But preparing for the transition is the best strategy to ensure your wishes are carried out.

* This column first appeared in The Press-Enterprise on July 14, 2013. Republished with permission.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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