According to the Service Corps of Retired Executives (SCORE), there are 28.8 million small businesses in the United States. Family businesses make up 19% of that total. Roughly 60% of U.S. employees work for a family-owned business. These statistics do not reveal the painful decisions a family may face over the fate of their company. Unfortunately, families often must decide whether keeping the family business is in their best interests. Sometimes it comes down to the owners’ estate planning and whether a business succession plan is in place.
As with any other business owners, it’s important for family business owners to include business interests in their estate planning. Each person who owns an interest in the family-operated company should discuss that interest with their estate planning attorney. An ownership interest could pass through a Will, but probate would be unavoidable. A durable power of attorney could help because the agent named in the document could immediately take over for someone who becomes incapacitated. Trusts may provide some solutions also.
For example, a trust could control the family business assets. Doing so may provide continuity of ownership and smooth succession to the next generation. Of course, the trustee would need to be someone who understands the business and how to manage it. The family may also be able to avoid having business interests pass through probate, which could cause unnecessary delay in business operations after the passing of an owner.
In addition to Wills, durable powers of attorney and trusts, savvy business owners should have plans in place to move the business forward as current owners retire, become disabled, or pass away.
This type of plan can be simple or complex, with each business having to find solutions that work for their circumstances.
One of the most common business succession documents is the buy-sell agreement. Among other things, a buy-sell agreement includes provisions for handling a business owner’s interest when he or she is no longer active in the business. For example, family members involved in the business may be able to ensure they are keeping the family business intact by allowing others family members to buy their interest rather than selling to an outsider.
Keeping a family business is not just about the numbers. It’s about family, too.
At Law Offices of John Mangan, P.A., we help our clients make informed decisions about their family business and estate planning concerns. We can set up an appointment for you if you just call 772-324-9050 or use our convenient Contact Form. Located in Palm City, the Law Offices of John Mangan, P.A. also serves clients in Stuart, Hobe Sound, Jupiter, and Port St. Lucie.