Business owners thinking about the financial stability of their loved ones and the continued success of the companies that they’ve run need to plan carefully. In addition to succession planning within the company to train potential successors, business owners also need to establish thorough estate plans. How they arrange to transfer ownership of the company may be one of the most important choices they make.
What options are there for addressing a family business in an estate plan?
Owners need to establish clear priorities
Creating an effective estate plan requires setting specific priorities first. Is the goal to provide a large inheritance for specific people or to ensure the continued operations of the company? Leaving the company to a specific family member can be an appropriate solution in some cases.4
Other times, the best option might involve moving ownership of the business to a trust. Especially when immediate family members are not in a position to run the company, establishing a trust empowers a competent person to manage the business as trustee while permitting specific people to receive profits from company operations as beneficiaries.
It is also possible to take on a co-owner while currently running the business. Co-ownership can allow a current owner to transfer their interest to the co-owner or to third parties after their passing, incapacitation or retirement.
Factors, including family dynamics and the type of company, may influence the best strategy for addressing the business in an estate plan. Business owners may need to consider the possibility of being incapable of running the company, as well as the inevitability of death.
Choosing the right tools can be a challenging task for business owners. Those with legal support while starting a company and creating an estate plan can help to better ensure that the business they run is a positive part of their long-term legacy.