Business Succession Planning
Families whose wealth is generated chiefly by a business enterprise face a range of specialized problems when considering the succession of the business enterprise. The transfer of one’s business to successors or family members should be done with careful consideration for not only the legal, financial and tax details, but also taking into account family dynamics and the unique characteristics of the business.
- Draft agreements to restrict the transfer of business interests or allow or require the redemption or cross-purchase of those interests in order to assure continuity in management and succession to control.
- Advise entrepreneurs about the use of employee stock ownership plans in connection with succession of ownership of the business.
- Advise business owners in the process of selecting and training family members or others to succeed to management responsibilities and to implement plans to assure their succession to effective management control.
- Design and implement plans that provide for the efficient transfer of value in a business for purposes of the gift, estate, inheritance and generation-skipping taxes, such as
- recapitalization of the business to create preferred and subordinate, or voting and nonvoting, interests;
- transfers of interests in the business that take advantage of established discounts for lack of marketability, lack of control, etc.;
- installment or other sales or redemptions to convert a growing equity interest into an asset with fixed value, so that future appreciation shifts to younger generations with minimal transfer tax cost;
- sales of interests to trusts for the benefit of others without causing taxable capital gain or interest income;
- gifts to trusts from which the owner retains fixed annuity benefits, with the result that growth during the term shifts to others tax-free; and
- sales to chosen successors in exchange for fixed annuity benefits, again as a means of fixing values.
- Design and implement plans for the purchase and maintenance of life insurance that can
- avoid estate, inheritance and generation-skipping taxes and at the same time provide liquidity for the payment of the taxes on the value of the business subject to death taxes, or
- serve the common goal of equity and family harmony by creating additional alternative benefits for family members who will not continue in the business.
- Draft voting trusts to provide for the succession of voting control over the business.
- Arrange in appropriate cases for death taxes on the value of a business to be deferred as long as 14 years after death and paid, essentially, with future earnings.