27 Oct How to Transfer Your Family Business
A family business is a valuable asset that you’ll want to leave in the right hands after you’re gone. However, unless you make a plan for transferring your business, you will have no control over who gains ownership when you pass. The experts at Phelps LaClair aim to help Arizona families plan for their future by discussing the many ways to transfer a family business.
Five Ways to Transfer the Family Business
1. Sell the Business
One way to transfer ownership of the family business during your lifetime is to sell it to your family members. This option can leave you with the income to enjoy a comfortable retirement while ensuring that the business passes to people you trust. Keep in mind that you must sell the business at its fair market value, otherwise, you will have to pay gift taxes.
2. Gift All or Part of It
Instead of selling, you could give all or part of the business to your children or other family members for free or for less than fair market value. Partially gifting your business allows you to transfer full ownership over time. You may have to pay a gift tax, but gifting the asset entirely removes it from your estate, and it cannot be subject to estate tax after your passing.
3. Enter a Buy-Sell Agreement
When you know who you want to pass the family business to, but you aren’t ready to transfer ownership yet, a buy-sell agreement is a good option. A buy-sell agreement is a contract that determines how your share of the business will be distributed after your passing or retirement. Like a will, a buy-sell agreement can guarantee that your share of the business goes to the right people. It can also prevent the estate or other owners from selling your share to an outsider after your passing.
4. Leave It in Your Will
Putting the family business in your will is a simple way to leave it to your children or other family members. When naming the successor(s), make sure to provide their full legal name and their relation to you. If you will be distributing ownership amongst several successors, you must also provide the exact percentage that will transfer to each person.
5. Create a Living Trust
You can also transfer ownership of your family business by selling or gifting it through a living trust. First, you have to transfer the business to the trust, and then you can name the successor as trustee. Naming your children as successor trustees will protect their ownership interests in the event of divorce or lawsuit, unlike selling or gifting the business outright. It also allows you to run your business as usual during your lifetime.
How to Transfer Your Family Business to the Next Generation
- Plan your succession early for a smooth transition in the future.
- Start training your successor(s) as early as possible, so that they can successfully run the business after you are gone.
- Prevent conflict by involving your family in the decision-making process.
- Make a retirement plan in case you decide to sell or gift the family business during your lifetime.
- Consult an estate planning professional to help make sure you cover everything necessary for the proper transfer of your family business.
Planning for Your Future
If you choose to gift, sell, or otherwise transfer your business during your lifetime, you should still secure the asset in your estate plan. Planning for the future can offer some peace of mind in the event of an untimely passing.
The experienced team at Phelps LaClair in Arizona has over 40 years of experience in estate planning. We’ll help you develop a successful plan that protects the transfer of your family business. Call 480-892-2488 today to learn more about our services.
Images used under creative commons license – commercial use (10/27/2021). Photo by Romain Dancre on Unsplash