PASSING ON YOUR FAMILY'S LEGACY
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Goals & Objectives
Nothing succeeds like success, the saying goes.
But for family businesses, it’s smart succession planning that can be the key to sustaining the company in the future and keeping it flourishing.
Benefits of a Family Business Succession Plan
Minimize taxes to both generations and the business itself
Maximize wealth building and retirement income
Plan for unexpected death or disability of a family member
Provide for family members not involved in business
Permits desired level of control of the business for exiting owner
Greatly improves business’ success rate
Improves confidence of key employees
Reduces potential for family conflict and preserves your legacy
Methods of Transferring the Family Business
Annual Gifting – The annual gift exclusion for 2020 is $15,000 per person. Considerations include the size of the business and business growth. The business’ value may be growing faster than what you can transfer via gifting.
Transfer at Death – Major business, tax, and planning issues and limitations are problems using this method, as the next generation of business owners may have to wait decades to acquire the benefits of ownership.
Sale or Partial Sale – Selling the business to the next generation using financing or a note, or some combination of sale, gift, and other methods.
Advanced Planning Technics
These strategies use estate “freezing” technics to lock in the value of the business at today’s value. This planning is critical for a business that has the potential to increase in value. These may include the use of Intentionally Defective Grantor Trusts, or Grantor Retained Annuity Trusts.
If you’re transferring your business as a part of your retirement plan, the optimal strategy for you will be dependent on the amount of continuing income that you will need to support your potential years of retirement. Ideally, strategic tax planning started years ahead of you ultimate business exit, will greatly reduce the amount of money you need from the business after your exit.
Essentially, with strategic planning, you fund your exit during the years you are actually working in the business and less in the years after you depart the business. This analysis must include how much money you will need to support your lifestyle and years of retirement.
For a business transferred to family members, it’s critical to prevent unnecessary taxes so that your business, tax, legal, succession, exit, and estate planning is well coordinated. What may well seem to be a straightforward transfer to a son or daughter may unwittingly create unforeseen taxes and have the unfortunate result of strained relationships in the family and a negative legacy for the parent who built the business.
Get the best professional advice available –
Uninformed, misinformed, or inexperienced advice will just result in more taxes, less money in your pocket, and less cash flow in the business. And remember, a business transfer between family members requires a third-party Certified Business Valuation. Failure to do so will open the door for the IRS to challenge the transaction and use their much higher value for the business. Your planning must be proactive to avoid this situation.
Change isn't easy
Our professionals work with privately held and family-owned businesses. We are well experienced in the challenges that typically arise, whether the business is passing to next generation family or management, or being sold to an outside strategic or financial buyer. Throughout the entire process, we stay attuned to the very personal nature of our clients’ needs, and respond quickly to issues and concerns as they arise.
We are business transition specialists. We help owners, family members, and advisors evaluate exit and succession options and implement plans to successfully transition businesses.
38 North Holly Avenue
Fox lake, IL, 60020
Main Line: 888.938.2975
Tim Foster's Direct Line: 724.518.0604
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