For the love of your business

What Will Happen to Your Family Business When You Die?

Business Succession / Buying or Selling Your Business / Estate Planning / Family Business / Legal Agreements / Sticky Situations

Maybe you have dreamed of leaving the business you have built to your heirs, but if you do not have a buy-sell agreement, a business succession plan, a business transition plan or a business preservation plan in place, that dream may not be realized.

Any number of factors can work against your dreams if you have not planned ahead. The IRS could value your closely held business for more than it can be sold for, and your family will not be able to pay the taxes. If it is a partnership, the other partners may not be able to pay someone to replace you, or have the cash flow to buy your share of ownership from your heirs. That’s why it pays to plan for the unexpected.

Buy-Sell Agreements Provide Options

A properly drafted buy-sell agreement provides for numerous trigger points to ensure that when something happens — you or your partner dies, becomes disabled, gets divorced, or simply wants out – the remaining partner is able to purchase your shares of the business or that your shares can pass outright to your heirs.

A buy-sell agreement is a binding agreement that is put into place before you retire or die.  Depending on the needs of your business, the buy-sell agreement can be prepared to involve many forms of payment to the selling shareholder or estate.

For example, you can choose payment via one lump sum or payments made over time.  In addition, a life insurance policy can be procured to ensure the payments do not adversely impact company liquidity.

Family Business Succession Planning Issues

Family businesses can be complicated, especially if there are multiple generations or blended families involved.  Some key business succession planning issues for the family business include:

  • Transitioning to the next generation
  • Aligning the interests of all family members
  • Balancing the financial returns
  • Anticipating family disputes
  • Estate planning and inheritance issues

Studies show that only one-third of family businesses make a successful transition to the second generation.  Working with an experienced business planning attorney will help ensure that your business can thrive even after you are gone.

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