Estate Planning For Family Business

How does a CEO protect his or her business and family for the future?

One of the benefits of owning a family business is that it can be a vehicle for wealth creation for the owner's immediate family during the owner's lifetime and for succeeding generations after the owner's death. But successful wealth creation requires not only operating a successful business, but careful, long-term business and estate planning.

Isn't a Will sufficient?

A well-drafted Will is an essential starting point because it sets out your wishes as to how your accumulated assets should be distributed after your death.

What doesn't a Will do for the family?

Typically, a Will does not specify in detail how you provide for family members, including succeeding generations, and relatives. There are complex legal, tax, and insurance issues — such as generation skipping trusts — which can only be alluded to in a will. Other legal documents are necessary to maximize inheritance assets by taking advantage of tax laws, and by setting down stipulations about how and when assets are to be used.

What doesn't a Will do for the business?

When personal wealth is complicated by a family business, estate planning is essential. If, for instance, the owner has not made a practice of separating out family wealth from business assets, thus leaving his or her spouse at the mercy of the business, the estate plan should do that. A will does not set forth buy-sell agreements, for instance, or provide for detailed use of the business's assets.

What is "Practicing Dying?"

Some years ago there was a popular program called Practice Dying Until You Get It Right, for Family Business Owners. This was not a very popular program for family business owners, but it did force them to confront the inevitable. The point was to ask, on the owner's death what provisions had been made for the surviving spouse, what is the surviving spouse's relationship to the surviving business, and how dependent on the business would the surviving spouse be? What about the children? Was there a succession plan in place? Had sufficient financial and tax planning been done for a smooth transition?

What are the benefits of such a program?

The Practice Dying exercise encouraged family business members to envision a variety of scenarios on the death of the owner. Will there be financial security for the spouse and the rest of the family, or will there be uncertainty, or even financial disaster? Will there be continuity in the business and harmony within the family, or will there be disruption in business relationships and bickering among family members?

Couldn't these kinds of things happen even when an owner retires?

Yes. In fact, failure to adequately plan for retirement has caused many owners to find that they are indispensible to the continued success of the business. They find that after so many years of building the family business they are trapped there and unable to enjoy the leisure and financial security they had envisioned. But even at this late date it is all the more important to plan for their departure. The alternative does not have many positive scenarios.

Then how soon should estate planning be done?

It is never too early to set up a good plan so the owner can spend many years or even decades carrying out its provisions. This way the owner can be reasonably sure that in case of retirement — or sudden death or disability — the inevitable negative consequences of not planning can be avoided. Otherwise, all of the consequences will fall on the surviving family and business.

Can't I just sketch out an Estate Plan for myself?

No. Good estate planning involves complicated financial and tax advice from professionals. Such instruments as Unified Credit Trusts, Marital Trusts, Life Insurance Trusts, second-to-die life insurance, Generation Skipping Trusts, and countless other means of assisting an owner to achieve financial efficiency and security for the owner's family can only be accomplished with the help of professionals.

But professionals like lawyers, accountants, tax and insurance experts are expensive, aren't they?

Possibly. However, because of the value they bring to a family and business's longer term wealth and security, any fees should better be considered as an investment instead of a cost.