Estate Planning and the Family Business

Planning for the future is a recommended and commendable pursuit for any person or family, but what do we mean when we talk about such planning? It is planning for your children’s education and planning for your retirement; it is planning for the unexpected death or disability and planning for the earnings replacement; it is planning for the transfer of your assets to your spouse and the next generation; and planning for federal and state estate taxes; and it is planning for the minimization of estate taxes and planning for the replacement of the wealth taken by those estate taxes. There are many personal and financial questions sitting behind the planning process. These questions include (1) “equally among my children or not?”, (2) “are there any special needs that need to be addressed for any beneficiaries?”, (3) “what about a legacy and including charities in my plans?”, (4) “how much is enough for the children?”, and (5) “what about specific assets or heirlooms that are to go to specific children?”, amongst many other questions.

People’s feelings, emotions, fears, joys, sense of security and comfort are all components in the context of estate planning. There are as many non-tax as tax issues that arise in the context of estate planning.

In the planning for a family business, we have just thrown another level of complexity and whole new batch of questions that we must sift through to address all of the estate planning issues.

The first question that must be answered in the estate planning when a family business is involved is “Is there a family member that wishes to carry on and run the family business?” If the answer is no, then our planning considerations are much more simple. However, planning for the ultimate sale of a business (because that is what we are talking about here) is not a spur of the moment thing, but one that if well-planned and thought out can maximize the value of a business. This is an entirely different planning project that would be covered in a separate planning engagement.

However, if there are family members who would like to carry on the business then we will have to address a myriad of other issues and questions. Is the spouse interested and capable of running the business? Are the children interested and capable of running the business? Are there different capabilities and interests among the children? Is control best left in one child? Are the children working in the business to be compensated the same? What about children who will not be working in the business, should they have an ownership interest in the business?