Owning your own business can be a great endeavor that takes a lot of passion and drive. Many small business owners tend to focus on the day-to-day management and growth of the business rather than planning for a time when they may not be involved in the business. This is a far too common mistake for anyone who owns a business, but especially for those who have children involved. Future plans for your enterprise are even more important when one of your children works in the business but the others do not. Keeping the peace among your children after you’re no longer able to participate in the business requires careful balancing of your estate plan.
Before considering whether or not to pass your business to the next generation—as opposed to selling it to a third party—make sure at least one of your children is capable of (and willing to) running the company. Once that has been established, then early planning is the next step to ensuring the best outcome. Ideally, succession planning should start at least five years before you decide to retire. And because life is unpredictable (you may become incapacitated or pass away without warning), the best time to start planning is now. There are several things to consider when planning for your small business if only some of your children are involved. It’s important to keep in mind that treating your children fairly doesn’t necessarily mean treating them equally when it comes to your estate planning. For this reason, being proactive will make sure your desires will be followed even after you can no longer run your company.
- First, minimizing the risk of conflict among your children once you’re gone requires a mindful weighing of your business as well as the other assets comprising your estate, your fiduciaries (agents, executor, trustees), and the interest and involvement of your children in the business.
- Second, you must consider the value of the business as well as control and management issues. This can be done by clearly identifying the roles and responsibilities of your successors in a written plan.
- Third, if you have a sizable estate, there are financial strategies that a knowledgeable estate planning professional can use to equalize distributions. This can also be done with other assets such as IRAs, 401(k)s, investment real estate, life insurance, as well as stocks, bonds, and/or mutual funds.
- Finally, an estate planning professional can analyze how the business is capitalized in order to ensure your estate plan is fair when it comes to your children. Notably, how a person’s business is organized has a direct effect on how it’s treated, taxed, and administered upon his or her death.
Simply put, ignoring or delaying estate planning for your small business is not financially prudent. As a successful business owner who already has the next generation involved in the company, you have an obligation to take charge of the future so that the fruit of your hard work can continue on. More important, clearly writing down your desires will help keep your family from bickering—a likely result if you just leave the business’ future to chance. Contact us for help with crafting an estate plan that will allow your business to continue to thrive for generations to come.