Small family businesses were once the backbone of the American economy, allowing children to learn a useful trade and/or management skills from helping in the family business. Moreover, it was assumed that one of those children would take over control of the business upon the retirement, disability, or death of the patriarch or matriarch of the family. Although family businesses all but disappeared for decades, they are coming back in droves across the U.S. If you own a family business, the Los Angeles business succession planning attorneys at Schomer Law Group, APC explain how estate planning can help protect your business.
Ask Yourself Some Difficult Questions
Asking yourself the following questions will help illustrate how vitally important it is to make plans that will ensure the survival and/or success of your family business:
- If an accident puts you out of commission tomorrow, who will take over the immediate day to day operation of your business? Does that person have the legal authority necessary to run the business? Will your employees, business associates, and family members accept your successor’s authority?
- If you become permanently disabled, or retire, who will take over your business? Will your family continue to benefit from the business’s success in your absence?
- Will your business go through probate following your death? If so, what will happen to the value of your interest in the business if it is sold? What will the tax implications be for your business? Does the business have sufficient liquid assets to cover any tax debt that might be owed when you die? How will your family get by financially during probate?
- If you plan to pass the business down to the next generation, have you prepared your successor to take over? Have you set up the proper legal structure for the business to facilitate the transfer to the next generation?
What Is Business Succession Planning and How Can It Help?
Business succession planning incorporates tools and strategies into your estate plan to ensure the continuation of your business in your absence and/or ensure that your family will receive the true value of the business. For example, if you plan to pass down your interest in the business to your children, you may want to create a Family Limited Partnership (FLP). With an FPL you maintain majority control and day to day management of the company for as long as you wish; however, your successor can also begin to learn the business while you are still around to provide guidance and advice. You are also able to slowly transfer your legal interest in the business to your child(ren) over time that produces some significant tax advantages.
If, on the other hand, you have already established that none of your children wish to take over the business (and you really do need to establish this one way or the other), entering into a buy-sell agreement ensures that your loved ones will be entitled to the benefit of the value of your interest in the business. A buy-sell agreement works best when you have a partner; however, you can enter into one with an uninterested third party. In short, a buy-sell agreement allows you to determine ahead of time what your interest in the business is worth or, in the alternative, provides an agreed upon method of valuing the business when the time comes. Your partner(s) agrees to purchase your interest in the business should certain events occur. This ensures the continuation of the business and a fair price for the sale of your interest in the business, the proceeds of which will then become part of your estate or will go directly to your loved ones.
Contact Los Angeles Business Succession Planning Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about protecting your family business in your estate plan, contact the experienced Los Angeles business succession planning attorneys at Schomer Law Group APCby calling (310) 337-7696 to schedule an appointment.