 Provided
by the Law Offices of RICHARD MAYBERRY
MAYBERRY LAW FIRM
2010 Corporate Ridge
McLean, VA 22102
(703)714-1554
Committed to providing the highest quality estate planning legal services for
individuals, families and businesses |
Are you a family business owner? Or are you the spouse, child,
in-law or employee of a family business owner? If you answered "yes" to
either question, then you are in good company. In fact, an estimated 90
percent of all U.S. businesses are family-owned or family-controlled. If you
are involved in a family business, here is some good news, and some bad
news, that could affect you. Some Good News
Family businesses, like their owners, come in all shapes, colors and sizes. They range in
size from the traditional small business to some of the largest companies in the Fortune
500, and account for about one-third of the membership in that elite group. They are the
engines that generate an estimated one-half of the U.S. Gross National Product and pay
half of the total wages earned in this country.
Some Bad News
In most areas of life and physics, it seems every positive action is countered by an equal
and opposite negative reaction. So it is with the life expectancy of family businesses.
Less than one-third of family businesses survive the transfer from the founding generation
to the next. Of the family businesses that do survive that initial transfer, only about
half then continue from the second generation to the third.
Statistically, 40 percent of family businesses are confronted at
any given time with the challenges of transferring ownership. Why do so few
family businesses, created and operated by otherwise savvy entrepreneurs,
fail to make a successful hand-off? The reasons are many and are very
case-specific.
One of the most common reasons is failure to properly integrate
family and business estate planning into a comprehensive, overall strategy.
Failure to do so can destroy the family business as well as family
relationships for generations to come. Here are three fundamental steps to
protecting both "families."
Identify Priorities
Planning for the survival of your family business begins with identifying and setting your
priorities for the important people in your life. If you were to die and be survived by
your spouse would you expect your spouse to continue to run the business or would you want
your spouse to be financially secure independent of the business? If you have children who
are actively involved in the business, are they ready to succeed you and, if so, when? If
you have some children who are not involved in the business, do you intend to treat them
equally in planning their overall inheritance? If none of your children is willing (or
able) to succeed you, is there an employee or friendly competitor who might be interested
in acquiring your business?
As if these people issues were not enough, there are knotty legal
and tax considerations with which to contend. Could your family business be
unnecessarily subjected to a requirement that a Court perhaps approve
strategic and tactical business decisions? Will your personal estate have
enough liquidity to meet the IRS "cash call" for any federal estate taxes
due within nine months of your death?
Identify Challenges and Strategies
Once you have set your priorities, you are ready to identify the challenges to your
priorities and evaluate strategies to overcome them. For example, if three-fourths of your
overall estate consists of the family business, it may be difficult to provide an equal
inheritance for the daughter who is involved in the day-to-day business operations and
also for her two brothers who are not. To do so, you may have to reposition some of your
assets now.
Implement Appropriate Strategies
Once you have identified the appropriate strategies to effect your priorities, all will be
for naught unless you actually take action to implement the strategies.
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