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How Do I Make a Seamless Transition of a Family Business?

Planning to hand off significant assets, especially a business, to the next generation is a financial decision. However, it is one that also requires the careful handling of a family’s internal dynamics.

The North Bay Business Journal’s article, “How to plan for a smooth transition of your family business,” explains that in wine families, usually one or two children go to work in the business. There’s often some kind of preferential treatment for them with economics or voting and control. A business owner needs to plan carefully in transferring her business to the next generation.

A crucial step in handling family dynamics is calling a meeting with everyone to discuss what’s going on with their business. A family meeting is an opportunity to discuss decisions with family members with reduced conflict and confusion.

To have a successful business succession plan, start with a business plan for the business. Next move to both financial planning and estate planning, especially estate planning for the current owner. You should then do tax planning around all of that.

Addressing the tax exposure is a challenge faced by those transferring assets. There are some tax issues with estate planning and asset transfer, unless it’s done during life. Transferring a business, or other assets when the owner is still alive, can be beneficial in the long run. Lifetime gifts can be a way to reduce estate taxes, because making a gift today before there’s been substantial appreciation is a way to leverage your gift and estate tax exemption.

A parent who transfers assets while still alive, would have to be willing to say goodbye to the income from an asset.

However, that doesn’t necessarily mean giving up control of the business. The process of transferring control of a business can benefit from a gradual approach. If you want to transfer the business to one or more of your children, but you want them to succeed on their own, you could bring them into the business as a manager and give them a little bit of ownership.

As a business owner selling out of a business, you need an experienced attorney to help you understand the impact of the amount of significant wealth that you may have, after the sale of the business. He or she will create a plan that will respect your values, goals and commitments, while making sure you have flexibility.

Reference: North Bay Business Journal (April 9, 2019) “How to plan for a smooth transition of your family business”

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