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Keeping Your Family Business in the FamilyWhen it comes to leaving a legacy for their children, many entrepreneurs expect to pass on the family business. And yet 39 percent of all family businesses transferred to the second generation fail.1If you are thinking of leaving your business to your children, you might want to consider the following questions. Are your children willing and able to run the business? Now is a good time to talk with them about their ambitions and expectations for the future. If your children's passions lie elsewhere – or if you worry that the business might create contention among them – it might make more sense to sell. 
On the other hand, if your children are interested in taking your place, start early to educate them about the ins and outs of running the company. The more they know, the better chance they will have to build on what you've created. Do you have a succession strategy? If you decide to keep the business in the family, prepare now for the transition. Simply gifting the business to your heirs could have huge tax implications, because any gift above $12,000 per child per year may be subject to gift taxes. Some business owners form a partnership with their children, not realizing that the partnership automatically dissolves with the death of either partner. As a result, the business could be stuck in probate for years, opening your affairs to the public and potentially draining the company of valuable resources. Have you considered forming a trust? A better strategy might be to transfer the business to a living trust and name your child as the successor trustee. During your lifetime, you remain the trustee and beneficiary of the trust, and you retain exclusive control over the business. Upon your death, the business avoids probate because it is no longer considered your asset. Living trusts can also help keep your personal information private. The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate conservation professional before implementing such strategies. Most entrepreneurs have spent their lives building and caring for their businesses. Stepping away from the controls may not be easy, but forethought can help make the transition as smooth as possible. 1) Harvard Business School, March 21, 2005 |
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