Building a small family business is part of millions of Americans’ dreams and plans for the future. Starting your own business can provide you with flexibility and the opportunity to build a business for your children and future generations. Any business owner will tell you that owning and running your own business takes a lot of planning. Just like a business, your estate plan also needs a lot of thought to make sure it is structured properly. If you own a family business, it is crucial that you know how your family business fits into your estate plan.
One of the first and most important steps you need to take is to choose who will be your successor in the business. Although this can be an emotional decision that implicates many aspects of family politics, it is important to face this decision head-on, and to make your intentions known. The earlier you choose a successor the sooner you can start the preparations to make the transfer as seamless as possible.
Another possibility you may want to consider is creating a family limited partnership. With a family limited partnership, you and your family members can create and control your family business. A family limited partnership has two types of partners: general partners and limited partners. General partners are in charge of running the business and making business decisions. Limited partners have an ownership interest, but are not necessarily involved in the business operations. For this reason, it is not uncommon for parents to name their children as limited partners. There are also tax advantages, as transferring assets to the partnership can help reduce your potential for an estate tax obligation after you die.
One issue you need to consider is the fact that one or more of the family members owning and operating the business may have spouses that could argue they have a right to the equitable distribution of a portion of the business. This could tie up your business and its assets for months or even years while the divorcing couple goes to court. To avoid this type of problem, you need to make sure the documents forming your business are specific about who has what degree of interest and how sales of individual shares of the business are to be handled, such as the right of first refusal for the other family members involved in the business.
Call us today at 651-371-9117 for a consultation. We have extensive experience helping our clients with their business structure and their estate plans.