Passing on the Family Business
A successful family business is one of the greatest legacies a person can leave to a child or other trusted relative. For you, it means that your life’s work continues to shine even after death. For them, it means an opportunity for a lifetime of stable income and, with prudent management, a continuing legacy they can pass on to their children or other loved ones.
However, a family company is not like just another piece of property. Keeping your business alive and healthy through incapacity and estate administration—and ensuring the people you trust most stay in charge—takes a great deal of advanced planning and coordination.
The first step to planning for the succession of a family business has nothing to do with your estate planning documents. The nature of your business organization can dictate the process by which it passes to your heirs:
- A business operated as a sole proprietorship (that is without any formal organization) is little more than a collection of personal assets and liabilities. This can make it difficult to keep the business going during the administration process.
- If your business has stakeholders other than yourself, your right to convey your interests through your will may be limited by the company’s operating agreement, articles of incorporation, bylaws or other formative documents.
- Even if your company is formally organized and wholly owned by you, structural changes may be necessary before your can devise it in the manner you wish.
If you have several family members or loved ones you would like to see benefit from your family business, it is important to take the relative abilities and interpersonal relationships of all those heirs into account when deciding who should have management authority. Delegating to too many people can create gridlock, while delegating to someone who doesn’t have the necessary skills or interest can leave your company in peril. Even worse, if your corporate documents and estate plan are not properly reconciled to clearly establish your intentions for your company, the resulting infighting can drag on for years, cost a great deal of money and seriously damage both your family and your business.
Fortunately, a skilled attorney (and financial planner) can help you fine tune both your business formation and estate planning documents to distinguish between which heirs you want to actively manage your company and which you just want to share in the income. (As a crucial aside, if you don’t know what a buy-sell agreement is, please ask us or find out ASAP because it could mean the difference between your business’s continued success and complete failure. We will have a post on this topic in the future)
Control of a family business is often a contentious issue during the probate process, so it is especially important to leave nothing to chance. Passing a family business on to your children or other relatives is a great deal more complicated than bequeathing cash, personal items or even real estate. We at Borenstein, McConnell & Calpin, P.C. can help you make sure everything is in place. We have offices in Union County and Hunterdon County, New Jersey. Call us today at 908-236-6457 or by email at firstname.lastname@example.org.