The Family Business and Estate Planning

Family businesses are often built with significant emotional and financial sacrifices and good old-fashioned sweat equity. Owners most often are focused on building their dream and managing the day-today running of the business. What happens when it’s time to consider leaving the business? How do business owners use succession and estate planning to make sure their transition plan maximizes economic opportunities?

Thoughtful early attention to a wealth transfer plan can help ensure an owner’s finances will be in order for their family, business and future generations. Early planning and a regular review of the plan ensures an owner will be able to adapt their plan to unforeseen changes in the business, family or economy and be ready for a transition or sale when the time is right. A business owner without a plan is at risk of not being ready when key opportunities arise for the sale or transition of a business.

A wealth transfer plan can help ensure your finances will be in order for your family, your business and future generations. It is especially important for business owners. However, a significant portion still have much to do in preparing for wealth transfer with 22% of business owners having not yet started any sort of wealth transfer preparations.

A Multifaceted Approach

There are many wealth planning challenges for business owners that don’t apply to other individuals. As a business owner, chances are a substantial share of your personal assets are made up of your business assets. Additionally, a business owner’s assets are often illiquid, leading to a greater need for a broad approach. In addition to common planning considerations for individuals – tax and estate planning, retirement planning and inheritance planning – a comprehensive wealth transfer plan for a business owner should encompass a broader range of considerations including business succession planning and family dynamics.

Start the Conversation

To begin the process, the first thing an owner should do is begin to have a conversation with a trusted financial or legal advisor. This individual can help the owner identify some of the areas they must reflect on as they begin their planning. Ultimately, the business owner will need the guidance of tax, legal and wealth planning professionals to create a comprehensive long-term plan that meets their needs. This sounds expensive but in fact can be the key to maximizing economic benefits for owners transitioning out of their business. Those without a solid plan are far more likely to miss the financial benefits that those with an estate plan and tax strategy enjoy.

Strategies for Wealth Transfer

A professional team – Business owners can benefit from the support and guidance of qualified tax, legal and wealth planning professionals to create a long-term plan.
Take inventory & prepare – Essential documents and information you will need or should create include:

  • Business Valuation – understanding the true value of your business will help you make an informed decision.
  • Buy-sell agreement – a prearranged contractual agreement between a buyer and a seller, defining triggering events – such as voluntary termination, death or total disability – for a sale and outlining price and other terms.
  • Business ownership documents/shareholder agreements

Someday, the business you’ve worked hard for could become your legacy. But leaving important decisions until a time of transition could create unnecessary stress and financial strain—far from ideal conditions for coming to a favorable arrangement.

Solidifying an exit or succession plan and wealth transfer strategy helps ensure that your business and your estate will transition as smoothly as possible when the time comes.

Written by Karla Krehbiel, Regional President, Johnson Bank.

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