If you own a family business, you undoubtedly invested a considerable amount of time and resources into starting, growing, and/or keeping that business operating successfully. Knowing how much you have invested in your business, protecting that business should be an integral part of your overall estate plan. To ensure the survival and success of your family business, you need to incorporate a business succession plan into your comprehensive estate plan. To help ensure the future of your business, the Essex Junction attorneys at Unsworth LaPlante, PLLC explain how to protect your family business in your Vermont estate plan.
Why Is Business Succession Planning Necessary?
Family-owned businesses have long been the backbone of the American economy along with representing the American dream. In fact, family-owned businesses are responsible for more than 50 percent of the U.S. gross domestic product (GDP). Despite the vital economic and symbolic contributions of family-owned businesses in the U.S., less than one-third of them successfully make the transition from one generation to the next and an addition 50 percent fail to make it to the third generation. While there are many factors that contribute to the failure of a business to successfully transition from one generation to the next, failing to plan for that transition is one that every business owner can and should control.
Incorporating Your Vermont Family Business Into Your Estate Plan
As a family business owner, you have undoubtedly devoted your life to building up the business or to keeping it running if you inherited the operation. To give your business the best chance possible of making a successful transition to the next generation, consider the following steps when creating your business succession plan:
- Consult with your estate planning attorney. Creating a business succession plan is something that should only be accomplished with the assistance of an experienced estate planning attorney.
- Choose a successor. Take the time to objectively contemplate your choice of successor, with the continued success of the business forefront in your thought processes.
- Discuss your choice with your successor. Never assume that a child (or other relative) is ready and willing to take your place in the family business.
- Review the legal structure of your business. Sometimes it helps to change the current legal structure of a business if the goal is to pass down the business. For example, creating a Family Limited Partnership facilitates the transfer by allowing you to slowly transfer legal ownership of the business while retaining control of the daily operations.
- Start transitioning early. Ideally, you should begin the process of transitioning ownership and control of the business long before you retire, become incapacitated, or pass away.
- Prepare your successor to take control. Even if your successor has worked for the family business for years, he/she needs to be trained to fulfill your role in the business.
- Be prepared for your incapacity. Do not overlook the need to plan for the very real possibility of your own incapacity when creating your business succession plan.
- Consider the tax ramifications of your death. One common reason a small business fails to make the transition from one generation to the next is the need to pay a significant gift and estate tax bill upon the death of the matriarch/patriarch. To avoid the loss of needed assets, plan for the tax ramifications of your death.
- Always have an alternative plan. Within your business succession plan, include an alternative plan in case your chosen successor is unable or unwilling to take over the business when the time comes.
Do You Need Help Protecting Your Vermont Family Business?
For more information, please attend one of our upcoming FREE webinars. If you need help protecting your Vermont family business by incorporating it into your estate plan, contact an experienced Essex Junction business succession attorney at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.
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