Advice on Passing on Ownership in Family Businesses

When a family business owner has the goal of passing on ownership in the business to the following generation, it is important to include details about business succession in your estate plan. The most challenging issue presented in many family business plans relates to identifying who will control the business. This article reviews some of the important pieces of advice that you should remember to follow if you are engaged in estate planning. 


Planning in Uncertain Times


One of the most difficult aspects of business succession planning today involves the uncertainties of  federal estate tax law. Under existing federal estate law, every citizen of the United States in 2019 can give during their lifetime or at death a maximum of $11,400,000. This amount is often referred to as the “basic exclusion amount”. Without Congressional intervention, the Exclusion Amount is set to be lowered on January 1, 2026. Given that federal estate tax law is as advantageous it has ever been and that this policy will not last forever, many business owners have decided to take advantage of these laws while they can. 


Issues to Consider when Succession Planning


The best way to highlight some of the important issues to consider when estate planning is to use an illustration. A husband and wife have three children: Child 1, Child 2, and Child 3. The wife currently owns and manages 100% of the family’s business, ABC Company. The company is valued at $20 million. Husband and wife want their children to become equal owners of the business. Husband and Wife currently owns assets besides the company that total $5 million in value. The husband and wife will pass away 20 years from now. Some of the most common estate planning strategies that the family might decide to implement:



  • The husband and wife do not undertake lifetime transfers of the company to their children. Instead, when the couple passes away in twenty years, their will leaves ownership interest in the company to the children in equal shares. Due to the likely appreciation of the couple’s estate, more than $16.5 million of estate tax is owed when they pass away. The amount of the couple’s estate that exceeds their combined available exclusion amount will be taxed.
  • The couple performs lifetime transfer of their business interest in the company to the couple’s children or to trust beneficiaries. By transferring assets in this way, the couple ends up owing substantially less in estate tax. Not only are substantial tax advantages realized this way, if the couple makes lifetime transfers to a trust, the couple can also end up achieving additional benefits including increased protection from lawsuits. These trusts, however, involve several substantial risks. Another downside is that donors are often not able to benefit economically from gifted assets after a transfer.



Speak with an Experienced Estate Planning Lawyer

Due to complexities involved with business succession planning, many people interested in passing on the family business find it valuable to retain the assistance of an experienced estate planning lawyer. Contact Ettinger Estate Planning today to schedule a free case evaluation.

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