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Decorative box shape BUSINESS SUCCESSION PLANNING As part of the estate plan, business owners have to effectively transition the business, including choosing successors, ensuring fair value on a business sale, minimizing estate taxes and equalizing distributions to family members not in the business. Failing to adequately address these concerns is why only 30% of family owned businesses succeed into the next generation.

A business succession plan balances transitioning of the business to the next generation, ensuring all family members are treated fairly and continuing financial security for the entire family. This may include a gift to one participating family member and equalizing estate distributions to other family members. It may involve a structured buy out of the family business to ensure necessary liquidity to accomplish all estate planning objectives and continuing financial security for the older generation. Each family and business structure is different and the appropriate plan depends on the individual family and business objectives.
When a business involves nonfamily members, a buy/sell agreement is a necessity to provide proper transition of the business to the appropriate individuals. It also ensures that the selling member receives fair value for his or her interest. There must be specific discussion about valuation, buy out terms, funding a buyout and restrictions on transfers to properly implement a plan. Pellittiere & Jonsson PLLC provides business owners the necessary guidance to navigate the complex issues of business succession planning within the estate plan. Each plan is different and will accomplish the particular needs of the owner and the family. With proper guidance the family business can stay in the family and continue to thrive for many generations.
The proper business succession plan includes a discussion of:
  • Structure of the business
  • Classes of ownership
  • Type of entity involved
  • Buy out terms in a buy/sell agreement
  • Valuation of the business
  • Non-business assets and the interplay with the transfer of the business
  • Timing of the transition of ownership
  • Utilizing trusts in the basic plan that match business succession objectives
Additional techniques to consider may include:
  • Gifting within exemptions
  • Recapitalization of ownership
  • Gifting to GRATS
  • Installment Sales to Defective Grantor Trusts
  • Opportunity shifting
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