In every family, there exists an Achilles heel: that one topic of conversation that can start heated debates. In some families, it is how the family business will be divided as it passes down to the next generation. Whether it’s due the death of the family patriarch or an unexpected illness or injury that leaves the business owner incapacitated, it’s important to work through the uncomfortable aspects and get to the heart of the matter.
Gone are the days when the eldest son receives the lion share of the business. Most believe those antiquated expectations have no place in our modern society. Still, the death of a parent can bring those unresolved sibling issues to light. If not handled, it can jeopardize the fate of the family business. A few common concerns:
- One or more sibling(s) does not have “business smarts”
- Divorce of a sibling
- Addiction issues that cause great concern in the family
- Sometimes the best choice to take over the family business simply isn’t interested.
There might also exist long-standing feuds between siblings and if they’re significant enough, they could affect everything their parents have worked years to build.
These are all challenging scenarios. It makes sense for some business owners to look past their first choices of their offspring and instead, look to other family members who might serve as a better choice for taking over the family business. That said, it can worsen family dynamics if adult children feel as though their parents chose a cousin over the “obvious” choices, despite the fact that Mom and Dad felt as though their own children would be more of a burden instead of a leader for the business.
For some families, that’s the tip of the iceberg.
Naturally, there are tax concerns associated with the family business. One option to remedy that problem is to transfer the property to family members, either directly or through a grantor trust. Not only does it keep the business in the family, but it can help avoid estate taxes in some instances. Sadly, too many families don’t plan for the burdens of those taxes and as a result, the business has to be sold in order to satisfy the tax bill. One way to avoid that is by setting up a life insurance trust, and then transferring ownership of life insurance policies to that trust. The policies are better protected and can serve as a solution for family members to ensure liquidity to pay the taxes. Choosing the proper trust is key; otherwise, you could defeat the purpose.
There are many potential trip lines in family dynamics, whether it’s blended families, the fear of creditors – even if you owe no one, your children or other family members could go through a divorce or face financial problems. If they have interest in any kind of business, a creditor can and will place a lien on the business until the debt is paid.
If you feel overwhelmed, it’s understandable. The good news is the right estate plan can prevent all of these scenarios – and many more – so that your family business can pass down through the generations and serve as a legacy. Contact our team of qualified estate planning lawyers today. We can help identify any weaknesses in your estate plan so that they don’t grow bigger with time.