When you’re running a family business, eventually the time will come to step back and let your kids take the wheel — while you assume a backseat role and spend more time transitioning to retirement. Transferring business ownership to your kids is something you should start planning for well ahead of time. These are some things to consider to ensure that the process of transferring business ownership goes smoothly!
- Figure out who the heir(s) will be. Do you have multiple children who all want a piece of the action, or only one? Consider who is best qualified to lead the business, or give everyone increased responsibilities and spend time training them and gauging how interested and passionate they are about business ownership. If only one child wants to take over, give them the business and increase the assets you leave to your other children so it doesn’t create family resentment.
- Draft a business estate plan. Prepare this in the event that you pass away before the business has been fully transferred. Business ownership is a complicated thing to hand down, so you need an estate plan that makes your wishes clear, and thoroughly covers the logistics. Examples include a rundown of the business’ assets and liabilities, key roles and instructions for filling those roles, directions for power of attorney, financial reports, etc.
- Research estate tax law. In most cases, you won’t have to worry about the estate tax — unless your estate exceeds $5.43 million (as an individual) or $10.86 million (as a married couple). If it does exceed that amount, you can start gifting stock to your children now to decrease the tax liabilities. Section 303 and Section 6166 in the tax code go over some rules that specifically help families inheriting businesses.
- Get the rest of your legal documents in order. At minimum, you’ll need a section in your will. Many lawyers also recommend setting up a living trust, which will mean that once you retire, the business passes straight to the person designated in the trust, rather than going into probate first.
The best advice? Hire a professional. This time in your life should be as stress-free as possible, and someone who is qualified to help transfer business ownership will remove the headache of trying to figure it out yourself.