Are you one of the millions of people for whom owning a family business is part of the “American Dream?” If so, protecting that business in your estate plan is imperative. The way to do that is to incorporate a business succession planning component in your overall estate plan. Of course, your plan will be tailored to meet the needs of your business; however, to give you a general idea of how to protect your business, the North Andover business succession planning attorneys at DeBruyckere Law Offices explain best practices.
Owning a Family Business
There are often some unique challenges a family business may face which highlight the need to incorporate succession planning in your comprehensive estate plan. Asking yourself the following questions will help illustrate how vitally important it is to plan ahead to ensure the survival and/or success of your family business:
- If an accident puts you out of commission tomorrow, who will take over the immediate day to day operation of your business? Does that person have the legal authority necessary to run the business? Will your employees, business associates, and family members accept your successor’s authority?
- If you become permanently disabled, or retire, who will take over your business? Will your family continue to benefit from the business’s success in your absence?
- Will your business go through probate following your death? If so, what will happen to the value of your interest in the business if it is sold? What will the tax implications be for your business? Does the business have sufficient liquid assets to cover any tax debt that might be owed when you die? How will your family get by financially during probate?
- If you plan to pass the business down to the next generation, have you prepared your successor to take over? Have you set up the proper legal structure for the business to facilitate the transfer to the next generation?
What Should Be in My Business Succession Plan?
Exactly what tools, strategies, and documents will be included in your business succession planning component will be depend on the details of your business and your plans for its continuation in your absence. For example, if you plan to pass down your interest in the business to your children, you may want to create a Family Limited Partnership (FLP). With an FPL you maintain majority control and day to day management of the company for as long as you wish; however, your successor can also begin to learn the business while you are still around to provide guidance and advice. You are also able to slowly transfer your legal interest in the business to your child(ren) over time that produces some significant tax advantages.
If, on the other hand, you have already established that none of your children wish to take over the business (and you really do need to establish this one way or the other), entering into a buy-sell agreement ensures that your loved ones will be entitled to the benefit of the value of your interest in the business. A buy-sell agreement works best when you have a partner; however, you can enter into one with an uninterested third party. In short, a buy-sell agreement allows you to determine ahead of time what your interest in the business is worth or, in the alternative, provides an agreed upon method of valuing the business when the time comes. Your partner(s) agrees to purchase your interest in the business should certain events occur. This ensures the continuation of the business and a fair price for the sale of your interest in the business, the proceeds of which will then become part of your estate or will go directly to your loved ones.
The details of your family business succession plan will be as unique as your business. The important point is that you have a plan in place to ensure that your business will survive in the event of your retirement, incapacity, or death.
Contact North Andover Business Succession Planning Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions about incorporating family business succession planning into your existing estate plan, contact the North Andover business succession planning attorneys at DeBruyckere Law Offices by calling (603) 894-4141 or (978) 969-0331 to schedule an appointment.