There are many issues to consider when transferring business ownership to a family member. These include the tax consequences, planning for the transition, and creating a trust for your children. Below we will discuss the issues and strategies to help you transfer your business ownership to a family member. Choosing a business succession plan will ensure that the transition proceeds as smoothly and painlessly as possible. Once you’ve done so, you’re on your way to enjoying the rewards of business succession.
Issues with transferring business ownership to a family member
Whether you are transferring business ownership to a family member or preparing to sell your business, you need to think about a number of issues. Most business owners assume that their children will continue to run their business in the same manner, but the reality is that your children will likely run their business differently than you did. Depending on your own family values, this can create conflict within the family and create hard feelings among family members. Not only that, your in-laws might use your children as bargaining chips.
While most business owners have a great idea about the transfer of their businesses to their children, many fail to consider the ramifications of poorly coordinating the transfer of ownership. In addition to identifying the consequences of transferring your business without proper planning, it can also be damaging to your family relationship. To avoid this, you should have a business transfer attorney review your existing contracts and prepare a succession plan.
When considering succession planning for your family business, it’s important to consider the tax implications of transferring business ownership to a family member. Not doing so can have disastrous consequences, including forcing you to sell your business and spend the money on estate taxes. There are, however, several estate planning strategies that can protect your business and minimize estate tax effects. Listed below are some of the options you have. Consider these options before transferring your business ownership.
Whether to transfer your business to a family member depends on the type of business you own. For example, if you own nine non-manager shares in a business valued at $600,000, you can transfer those shares to your children for an amount of $540,000. This would reduce the value of John’s unified exemption by about $1 million. However, if your business is worth more than this amount, you should consider transferring it over time.
Planning for transition
Transferring the business from one generation to the next requires careful planning. Transitioning management and ownership to another family member requires careful communication. Identifying appropriate leadership and key employees is an important first step, as is creating a succession plan. You should also consider the impact on the business and the community. If the business is small and the business is being managed by a single family member, the process may be easier.
A deliberate succession plan is straightforward if you have an heir already identified. Be sure that your chosen successor has the appropriate education, experience, and leadership training, so he or she is able to take over effectively. The process is similar to creating a will or organizing for the next phase of the business. In addition, communicate your succession plan to key stakeholders so they will feel comfortable with the plan. Planning for the transition of leadership to a family member should be as smooth as possible, but it is equally important to communicate it to family members.
Creating a trust for children
Creating trust for children is a good idea when transferring business ownership to another family member. Often, it is not possible to transfer the business to another family member if the child is not yet 18 years old or if they have special needs. However, it is possible to transfer the business interests to a child to run the business. It is important to consider the potential tax consequences.
A child’s trust is a legal document that specifies that assets are to be managed for the benefit of the child or children. It prevents the parents from using the trust principal or income for their own use. A trust allows a child to inherit assets that are up to $5 million, but it also specifies when and how the children will be allowed to access those assets. This is a valuable tool for avoiding disputes and ensuring that assets will pass to their family members.