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Wednesday, May 30, 2012

Family Business: Preserving Your Legacy for Generations to Come

Are you a business owner? If so, you need to consider the following truth: Someday you will exit your business.  For most closely-held business owners, this reality is hard to imagine, but without taking time to plan for the inevitable, you will not be able to ensure that your business and the wealth that you have created are protected and pass smoothly to future generations.

More than 70 percent of family businesses do not survive the transition to the next generation. Ensuring your family does not fall victim to the same fate requires a unique combination of proper estate and tax planning, business acumen and common-sense communication with those closest to you. Foley & Foley can help business owners develop a sound exit planning roadmap and assist in the preparation of strategies and business organizational requirements to help assure a smooth business transition from one generation to the next.  Below are some steps you should consider taking as part of your business succession plan. 

  • Meet with an estate planning attorney at Foley & Foley to develop a comprehensive plan that includes a will and/or living trust. Your estate plan should account for issues related to both the transfer of your assets, including the family business and estate taxes.
  • As part of the estate planning process, communicate with your family members about their wishes concerning the business. Enlist their involvement in establishing a business succession plan with your attorney to transfer ownership and control to the younger generation. 
  • Make sure your succession plan includes:  preserving and enhancing “institutional memory”, who will own the company, advisors who can aid the transition team and ensure continuity, who will oversee day-to-day operations, provisions for heirs who are not directly involved in the business, tax saving strategies, education and training of family members who will take over the company and key employees.
  • Discuss your estate plan and business succession plan with your family members and key employees. Make sure everyone shares the same basic understanding.
  • Plan for liquidity. Establish measures to ensure the business has enough cash flow to pay taxes or buy out a deceased owner’s share of the company. Estate taxes are based on the full value of your estate. If your estate is asset-rich and cash-poor, your heirs may be forced to liquidate assets in order to cover the taxes, thus removing your “family” from the business.
  • Implement a family employment plan to establish policies and procedures regarding when and how family members will be hired, who will supervise them, and how compensation will be determined.
  • Have a buy-sell agreement in place to govern the future sale or transfer of shares of stock held by employees or family members.

You have worked very hard over your lifetime to build your business, but you should resist the temptation to retain total control of your business well into your golden years. There comes a time to retire and focus your priorities on ensuring a smooth transition that preserves your legacy – and your investment – for generations to come.  If you want to better understand how we can assist your business make this transition, contact us today for an initial business planning consultation.
 

 

 


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