May Potenza » Blog Archive Family Business Succession Planning

June 21, 2017 – 02:16 pm

Family owned businesses are the engine of our economy, employing 60% of our workforce and contributing 64% to our total GDP (KPMG, 2013). Return on assets is greater in family businesses, averaging 6.65% more return than non-family owned businesses (University of Vermont Family Business Facts). And yet, the average lifespan of a family business is a mere 24 years (KPMG). About 70% of family owned businesses fail or are sold before being passed to the next generation (Harvard Business Review, 2012). For many such families, the old saying, “T-shirt to T-shirt in three generations” holds true.

Why do so many family owned businesses barely survive a generation? One major reason is that owners either have no succession plan (beyond a simple will) or have not clearly thought out what a successful plan would entail. Passing a family business from one generation to the next, or planning for the disposition of an ongoing business to benefit heirs, can be a challenging estate planning problem. Therefore it is critical to the survival of a family business that the owner begin the planning process early with the assistance of an experienced estate and business planning attorney. An experienced attorney can insure that a business passes seamlessly to the heirs in a timely manner, subject to a minimum amount of estate taxes and other estate settlement costs.

One reason passing a family business to the next generation can be so complex is that family relationships are complex. Parents may expect too much or too little of their children. There may be sibling competition, or at the other extreme, apathy about the business. In some ways, a good estate planner is also a mediator, negotiating a fair arrangement to satisfy all family members and insure the success of the business.

Take the hypothetical example of Arizona Balloon Company, a successful 25-year-old business founded and run by John Smith. He employs his wife and three daughters, as well as 20 other employees. He has two younger children who are not involved in the business. One day, John dies suddenly of a heart attack. His business is worth $12, 000, 000. His wife, daughters and employees are left to fight over their disparate visions for the business. They also argue over their respective interests in and responsibilities for the company. In the end, after spending hundreds of thousands of dollars in legal fees, with the business floundering, the only path forward is liquidation.

How can these problems be avoided? One option is to place the family business (whether in LLC, partnership or corporate form) into a revocable trust designating the business owner as grantor and trustee. The grantor funds the trust with business assets, and as trustee, retains control over the assets. Upon certain events (such as death or disability of the owner), the trust distributes the assets to the beneficiaries. The business owner can also determine other distribution triggering event(s) such as a beneficiary reaching a certain age or obtaining certain goals. The business owner can also decide who controls the trust after his or her death by naming alternate trustees. Two distinct advantages of a trust include avoiding the cost of probate (as high as 10% in some states) and avoiding delays in the transfer and control of business assets to beneficiaries. Another advantage of a trust is that if members of the next generation are too young or inexperienced to take on the responsibility of running a business, the power to control the business assets can be given to a trustee until the heirs are a certain age and experienced enough to take control.

There are also tax advantages of placing a family business into a trust. Estate taxes can be mitigated by employing certain planning techniques. Irrevocable trusts are often used in an asset ‘freeze.’ Business assets placed into an irrevocable trust can shelter appreciation from estate taxes. For example, if you were to create and gift to an irrevocable trust with privately held shares of $5.43 million (the current estate / gift lifetime tax exemption) and the trust assets grow to $6.43 million, the $1 million appreciation is estate tax free (along with the initial $5.43 million lifetime exemption gift). This technique is especially effective when healthy future growth of a business is expected. A gift of $5.43 million into an irrevocable trust now can keep future appreciation and the income generated by that gifted interest out of a taxable estate.


Real Spark Real Spark Women Girls Fashion Plated Gold & Silver Tree Of Life Elegant Circle Drop Dangle Statement Earrings
Jewelry (Real Spark)
  • The tree of life always related with family, so it is an ideal gift for family member or bestie.
  • Find a fashion accessory to show your personality
  • Delicate handcraft
  • Women gold plated drop earrings
  • The item is well packaged by the free soft velvet bag of Real Spark
Darkey Wang Darkey Wang Fashion Personality Charming Evil Eye Necklace BringsYou Shining World
Jewelry (Darkey Wang)
  • Can match any clothes
  • Simple, Neat and Natural
  • Wearing it, it can bring you more confidence, and more charm Makes you more attractive
  • Very very cool!!You are looking at a new handmade
  • Valentine s Day gift£¬Thanksgiving gift,Christmas gift, The best gift for lover and mom and dad and friend and family,etc
Prestige Palace Awards 1st Place Winner Gold Award Medal, Antique Gold
Sports (Prestige Palace Awards)
  • Are you looking for award medals suitable to give out during your sport events such as soccer, baseball, football or basketball? Or maybe you need medals for family...
  • These unique award medals were designed for any and all of your award needs. There is no ugly side to these medals. Both sides feature intricate 3D designs with...
  • These 3 inch / 7.5cm large solid zinc medals that weight over 3 ounces are available in Gold, Silver or Bronze finish for 1st 2nd or 3rd place recognition in Olympic...
  • With your one (1) in cart purchase, you will receive one medal of your choice, to get a complete set add the desired finish to your cart individually
  • And Finally, There s No Risk! If for any reason you don t absolutely adore this medal, just send it back for a full refund!
Sulfate Free Argan Oil Shampoo and Conditioner: Sodium-Chloride-Free, Alcohol-Free, Paraben-Free, Natural Sun Protection and Highest Salon Quality Pure Ingredients with 12 Plant Extracts
Beauty (Vizeri Beauty)
  • SALON RECOMMENDED: No sulfates, sodium chloride (salt), drying alcohol, or parabens to damage hair, cause hair loss, fade color, or shorten life of keratin treatments...
  • 12 PREMIUM-QUALITY NATURAL INGREDIENTS: Expect complements like this customer people have stopped me to ask about my hair! Really??!! That hasn t happened for decades...
  • 100,+ BOTTLES SOLD: Proven formula gives fast results on dry, damaged, frizzy, or color-treated hair. Manufacturer s empty bottle gaurantee for no risk. Order now...
  • When you use this rich and luxurious shampoo and conditioner set the rejuvenating transformation starts immediately. This moisturizing shampoo gives your hair a...
  • Order now and while you re at it, get a set for a friend or family member you love. Guaranteed to end dryness, frizz, thinning, and breakage. Increase hair strength...
Simply Addictive Games Dynasty Toys NERTS 12 Decks of Playing Cards Set
Toy (Simply Addictive Games)
  • Set of 12 Standard Playing Cards
  • Each Deck is a Standard 52 Card Deck.
  • (12) Brightly Colored Decks.
  • Specifically Designed for Easy Nerts Scoring.
  • Great for all Card Games. Perfect for Game Night with the family.

Related posts:

  1. Family business and Succession Planning
  2. Family Farm Succession Planning
  3. Family Success Center NJ
  4. Family tree relationships
  5. Family and relationships