Family Business in Succession Planning
Below is a really good article on thinking about the structure of your family business when determining your estate plan. There are some things that are incredibly important in that setup, such as the successor in planning as well as the cash flow setup. Sometimes people want to be equal, which may create inequities in fairness. The structure of the family business is crucial to its long term survival.
See more below on the issues with estate planning.
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Structure of family business can help your estate plan
At some point, every family business owner considers what will happen when they are no longer able to run the business. Will they be able to retire ” when they are ready ” and successfully pass on the business?
To minimize the chance of failure, family business owners must be willing to explore all their options. This cannot be done passively. Owners who commit to this step will open up many possibilities.
Next, family business owners must identify the result they want. Most parents want to be fair to their kids. Contrary to popular belief, “fair” does not necessarily mean “equal.” Perhaps more on this later.
In our last column, we gave the example of a “land rich but cash poor” ranch where one child wants to continue the ranch but the other children have no interest. The situation could just as easily have been that all the kids want to continue the ranch, or some number in between.
Once we know the parents’ desired result, we look to see if the business (i.e. ranch) is operated as a business entity such as a corporation, a limited liability company, or partnership. The answer to this question will help us to identify options.
For example, if the ranch operates as a limited liability company, there is a way in which one child can be given the control to run the ranch but all of the children can share in the profits.
This is just one of many ways in which we can use the operation of a family business to accomplish family estate planning goals. When used in conjunction with a will or trust, remarkable estate planning solutions are available.
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