Succession planning for the family business poses a number of challenges, including the timing of the transfer and how interests will be held, determination of who will succeed ownership and management, transfer tax and income tax considerations, and providing for family members who are not active in the business. Use of the proper estate planning and business succession tools can result in a smoother transition from one generation to the next.
Family Partnerships and LLCs
Family partnerships and family limited liability companies (LLCs) may be used to transfer business interests to the family and reduce estate taxes. Essentially, parents transfer discounted shares of the business to their children without giving up control of the business. Utilization of a family partnership or LLC ensures that family wealth is passed down to the next generation.
Buy-Sell Agreements are utilized to control who is allowed to receive shares in the business. Among other provisions, a Buy-Sell Agreement may include a right of first refusal or mandatory buyout of a deceased (or retiring) owner’s shares. Buy-Sell Agreements may also be used to control the ownership of business interests in the event of a divorce.
Lifetime Transfer Strategies
Lifetime transfer strategies allow for the business owner to maximize their lifetime gift tax exemption while minimizing estate taxes. In addition, a gift to a grantor retained annuity trust or an installment sale to a grantor trust may be utilized to transfer a closely-held business interest to future generations with little or no gift tax.
Succession planning for the family business is an important part of any business owner’s estate plan. Lonich Patton Ehrlich Policastri can help you create a comprehensive, long-term succession plan tailored to your business and family needs. Our attorneys will work with you and your family to assemble a succession plan which allows you to retain flexibility in the present and which utilizes lifetime transfers as well as transfers at death.