Family businesses can be crucial to a family’s survival and well-being. If no estate planning is employed then a family’s main source of income could be lost. Having a plan for how to transfer your family business after retirement, death or other circumstances preventing you from controlling your company, is vital to the success of the business.
Getting started may be difficult, but it is important to weigh your options and decide how long you want to be in control and how you want the business to be handled.
One option to transfer the family business is to sell it outright. This is a good method for those in retirement because income is gained immediately. Although you may want to sell the business to a family member for less than fair market value, that is not a good idea. Selling below market value can have some tax consequences.
A discussion with family members about selling the business should minimally involve who the family should contact for guidance, competitors who could be interested, trade groups or other sources which could be helpful in maximizing the price.
Another option is to plan a buy-sell agreement. This is good if you want to remain in control of the company. This allows you to have a plan of who you want the company to go to, should you retire or become otherwise unable to attend to business.
A final option is to set up a living trust. The trust must be drafted carefully for transition to flow as efficiently as possible. Outlines of business operations and ownership decision making are important details to include. In this case, the business is transferred to the trust with the proposed beneficiary named as the surviving trustee. In this option, the current business owner remains in charge until he or she chooses not to be.
Deciding on a course of action allows for a smooth transfer. This allows the business to operate without the stress of figuring out what should happen with the company. Planning ahead increases the chance that your business will remain successful, even after you leave it behind.
