Keeping Your Family Business in the Family

Published on: Mar 03, 2017 by Richard Kollauf - JD, CPA, CFP, AEP

Updated on: November 11, 2024

A successful family business can provide long-term financial security for you as its owner, as well as for your loved ones. To improve the chances that your company will continue to benefit your heirs after you exit from your business, take steps now to keep it in the family.

Staying in-house

Careful estate planning can ensure that a business continues to benefit family members and that ownership of the business isn’t diluted — at least until the business is ready to accept outside investors.

For example, a well-designed buy-sell agreement can prevent owners from transferring their shares outside the family, while providing the liquidity they need to exit the business. And prenuptial agreements can prevent married owners from losing a portion of their shares in a divorce.

Trusts or other mechanisms can also restrict the ability of your heirs to transfer shares. If shares are held in trust, however, it’s important to include mechanisms for providing beneficiaries with a say in the business’s affairs — particularly if they work in the business.

THE WHAT, WHY, AND HOW OF TRUSTS

For instance, the trust agreement might give some or all of the beneficiaries control over how voting and other ownership rights associated with the underlying shares are exercised.

Or, if the beneficiaries are minors or otherwise not ready to assume this responsibility, these rights might be exercised by a trustee, advisory board or other fiduciary (with or without input from the beneficiaries).

ESTATE PLANNING AND EXIT PLANNING GO HAND IN HAND

Considering many strategies

These are just a few broad concepts to think about when considering how your business fits into your estate plan. The important thing to bear in mind is there are many strategies to consider, some of which could become more or less appealing as time goes on and you close in on retirement.

EXIT PLANNING: THE OFFICIAL GUIDE

Please contact our firm to discuss your best options now — and in the future.

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Biz Tip Topic Expert: Richard Kollauf - JD, CPA, CFP, AEP

Richard is a Principal for SVA Certified Public Accountants and has more than 35 years of experience working in financial, accounting, and legal operations. Richard’s expertise in the multi-faceted financial environment includes business succession planning, tax, investments, finance, mergers and acquisitions, estate planning, and trust administration. He also has experience in estate planning and distribution for complex operational and investment multi-state businesses. Richard provides income tax consulting services to closely-held and family-owned businesses, as well as high net worth individuals.

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