Planning for Family-Owned Businesses
A family business is rarely just a financial asset. It often carries relationships, history, and expectations that a standard estate plan may not address.
What Makes Family Business Succession Different from Standard Estate Planning
A conventional estate plan distributes assets. A succession plan may also need to address how a functioning business continues: who owns it, who manages it, and how decisions are made when ownership changes hands.
It all depends on the business, the family, the cashflow, and the needs and goals of the founder or senior family members. Some children may have the ability and interest to be involved, and others may not. Planning may consider how the next generation can be prepared for future roles, and how employees can be supported and rewarded when appropriate.
These questions often interact. Decisions about ownership, governance, and taxes can affect one another, which is why they are often considered together.
The Planning Tools That Make a Succession Work
No two family businesses are structured the same way. The right approach depends on the ownership structure, the family, and the state where the business is organized and the owners live. It all starts with the interview and the facts of the case.
Ownership Structure
How the business is owned can affect control, transfers, and taxes.
Buy-Sell Agreements
Agreements can set what happens to ownership if an owner dies, becomes disabled, or wants to exit.
Gradual Transfers
Ownership can sometimes be transferred to the next generation over time.
Trusts and Family Entities
Trusts and family entities may be used to hold and transfer business interests.
Governance and Leadership
Planning can address who makes decisions and how future leaders are prepared.
Liquidity and Insurance
Insurance and liquidity planning can help heirs and the business through a transition.
Weintraub Law Group concentrates in three areas where the cost of the wrong attorney is highest: capital formation, business transactions, and securities litigation support.
How the State You're In Changes the Plan
Succession planning happens under the laws of the state where the business is organized and where the owner lives. Estate taxes, inheritance taxes, and trust laws vary from state to state, and some states tax transfers that others do not.
For families whose business, property, or members are located in more than one state, those differences can affect how ownership is held and how a transition is structured.
A Team Approach
Succession planning often involves more than one professional. Many family business owners have long-standing relationships with accountants, financial advisers, and insurance professionals.
We work alongside them. We believe a team approach is frequently necessary and that diverse insights can be important. Our role is often flexible based on client needs and objectives.
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Frequently Asked Questions About Family Business Succession Planning
When is the right time to start succession planning for a family business?
Often earlier than owners expect. Planning while the senior generation is still active can leave more options available than planning after a health event or family conflict.
Do all children have to be treated equally in a succession plan?
Not necessarily. Equal and equitable are not always the same. What matters is that intentions are clear and documented.
What happens if there is no succession plan in place when an owner dies?
The business generally passes under the owner's will or, without one, under state law. Heirs may not agree on what to do with it, which can create difficult decisions for the family and the business.
Can a succession plan address family members who don't want to be involved in the business?
Yes. Planning can consider ways to treat family members fairly whether or not they take an active role in the business.
How does the federal estate tax affect family business succession?
A business interest is generally included in the owner's estate. Depending on its value and the tax laws in effect, estate taxes can create challenges for heirs, which is one reason planning is often done in advance.