Michigan Estate Planning Blog

Planning Your Family Business Legacy

Sometimes, passing along your assets to the next generation is simply a matter of passing them along. You just let the gift and the potential represented by that gift be your legacy (emphasis on the “sometimes”). However, when the asset is a business, it is rarely that simple. A business is not merely a thing. No, a business is a mindset, an activity and, oftentimes, even a lifestyle. It can get complicated. If your legacy is the family business, then with great responsibility comes the need for equally careful planning, preparation and dialogue. Because every business is different, as every family is different and every individual is unique, what is right for a family business is something to be figured out and understood. That said, businesses have been coming and going for generations. Some have transferred successfully and others less so. Consequently, there are some tried and true strategies to consider when planning for your own family business succession. Whether your objective is a sale, windup or succession, Forbes has provided a practical roadmap in a recent article titled “Six Steps For Making Your Business A Family Legacy.” Here are the six steps by heading alone: 1. Give the family a reason to continue the family business 2. Develop a management team 3. Structure a business succession plan 4. Fund the business succession plan 5. Wealth replacement for other family members 6. Have a successful business So what is right for you, your family and your business? I recommend reading the original article and then consulting with your team of professional advisors. Your attorney, accountant, financial planner and insurance agent will each bring a valuable and unique skill set to the table.

Reference: Forbes (February 3, 2014) “Six Steps For Making Your Business A Family Legacy”

For more information, see www.jerryreiflawyer.com

Family Wealth And Financial Entropy

Family wealth created through a family business can be a wonderful blessing for a family. The trick is keeping it through the generations. Far too few families make proper plans to keep the family business going between generations. That is where the real work needs to be done. Only the big family names (think “Rockefeller”) lead us to believe that family wealth is perpetual. In reality, family wealth left unchecked has a tendency to follow the laws of entropy as it devolves into chaos and greater and greater breakdown or division. This phenomenon, along with some constructive advice, is featured in a two-part Forbes article titled “How The Wealthiest Families Make And Lose Their Money.” The article offers a solid point about the power of solidarity. The family that sticks together stays together, and so it is with the family business and the family wealth. As a whole, the family assets get a single voice, a larger capacity, and even attracts the attention of professional management. Absent that solidarity, the basic estate laws can effectively and efficiently work to pull apart the assets, the business, and potentially the family’s financial health. As you read the original article, think about your own family assets. How do you want to pass along your family wealth, whether you have a little or a lot?

Reference: Forbes (February 5, 2014) “How The Wealthiest Families Make And Lose Their Money”

For more information, see www.jerryreiflawyer.com

Planning For Things To Turn Toward Chaos

If you are a small business owner, then you simply cannot have your greatest personal asset, the greatest family asset, and the activity you are most proud of eroded, chipped away or swallowed whole by litigants or creditors. You need a plan to protect the business as an asset. Whenever an asset is important it is also worth your time to protect it. Businesses are a unique kind of asset. Protecting them requires a certain kind of thinking and planning. Unfortunately, most business owners simply have not done their due diligence with asset protection planning. However, even if you’re in the know, it is worth reading the recent Private Wealth article addressing this important topic, “Asset Protection For Business Owners.” Asset protection is always about assessing the risks to the asset. The primary risks to any successful business are litigants and creditors seeking a piece of the pie. No one really likes or trusts creditors, but far and away it is litigation that can take down a thriving operation. It doesn’t even have to be a “legitimate” lawsuit if it's litigation against the business itself. While we are at it, let’s not forget about personal litigation or divorce. Nevertheless, structuring the assets of the business and the business itself is a tremendously powerful way of shielding you, your family, and the wealth tied up in the business from being taken down. But here’s the rub: a plan in place is often a saving grace where the plan left on the chalkboard is always just wishful thinking. Here is a funny bit of math the article pulls out of a recent study by Price Associates: “About 89.7% of these business owners said they are concerned about such lawsuits, but only 26.9% have an asset-protection plan.” Why so few? Whatever the source of risk to the business as an asset, there are a wide variety of strategies that can be employed to limit or eliminate the risk. A powerful protection might even stop a suit dead in its tracks long before a plaintiff engages the court! To do the most good the plan must be developed with all the variables in mind and by a seasoned professional. Above all, however, this essential planning must be completed before it’s really needed. So don’t put it off and leave your business at risk.

Reference: Private Wealth (March 7, 2014) “Asset Protection For Business Owners”

For more information, see www.jerryreiflawyer.com

Do You Know The True Value Of Your Business?

A business is a tricky thing to plan. First, the business is a thing in motion rather than an asset at rest. And second, businesses are a hard asset to value appropriately. Does your retirement plan and maybe your estate plan for your heirs rely upon the business? Well then, do you know what your business is actually worth? For a sobering problem many business owners end up facing when it comes to valuing their business, be sure to read a recent article in Forbes titled “Is Your Business Worth As Much As You Think? Many Aren't.” At the core of the article is an interpretation of findings recently released by Pepperdine University in its 2014 Capital Markets Report. The key finding: buyers and sellers of businesses cannot agree on how much they are worth. Instead of negotiating back and forth to an eventual middle ground value, about 1 in 3 engagements fell through without any sale at all. Now, keep in mind that it is always in the nature of high-pressure deals to come to such divisive and decisive ends. However, all the same there is a lesson to learn when so much is at stake. What is your business worth and how do you prove it? How do you approach the sale and how do you structure your assets thereafter? This is a complex transaction. Putting it into the proper context and value is essential both in the beginning and the end of the process.

Reference: Forbes (March 2, 2014) “Is Your Business Worth As Much As You Think? Many Aren't”

For more information, see www.jerryreiflawyer.com

The Aftermath Of Selling The Business

Selling your business is no easy task, nor is it a quick one. At some point an agreement is presented and, if accepted, the changes can happen as fast as the pen can sign. Nevertheless, in the aftermath of the sale any deal can turn acrimonious. If you and your family are considering the sale of the family business, and maybe considering an actual offer on the table, there is some business thinking that should enter the mix. This is especially true when it is your exit from the business. Consider the warning alarm sounded by Forbes in a recent article titled “You've Finally Sold Your Business: Now The Ugly Negotiations Really Begin.” It is in the interests of most sellers to make the price of the business dependent upon its future success. Consequently, there is some money upfront with a promise for full payment upon full performance. Sometimes, the idea is just to stagger full payments for the sake of financing. Plans like these can give both buyer and seller the best of both worlds, or it can mean a world of litigation when there is a disagreement or things go wrong. Remember, when planning for the sale of the family business, it really does matter just how you sell the business and it pays to be aware of the issues in advance. Read the original article for a number of common scenarios. Finally, do not forget that the family business is likely an important part of your estate, too. More often than not, the family business is your estate. If that is the case, then be mindful to structure the sale in accordance with the family needs.

Reference: Forbes (February 21, 2014) “You've Finally Sold Your Business: Now The Ugly Negotiations Really Begin”

For more information, see www.jerryreiflawyer.com

Successful Family Business Succession Tips Saginaw, Michigan

Planning for your estate and planning for your business are one and the same. When you are a family business owner looking to pass the torch, the business is at once your greatest asset and likely the center of the family's wellbeing – but in another important sense planning for a business is not at all the same. You cannot afford to mess this up. Succession planning is unique because business is business, and so a successful succession is a careful one. There are a great number of moving pieces to your business and to your family. Nevertheless, there are some basic guiding principles to help tie it all together. A recent article in The Business Journals offers “5 tips for a successful family succession.” While you should consult the original article for the details, here are the “five tips”: 1. Be Transparent 2. Clarify Ownership Values 3. Plan Ahead 4. Consider Financial and Tax Ramifications 5. Stay Connected Essentially, respect the family as family and the business as business. Family is here to stay and everyone has to come out on top, while the business requires leadership, sharp decision-making, and a business mindset. It pays dividends to work with the family and maintain transparency regarding your plans to make the “handoff” and their plans to receive. Ownership is a big issue to clarify, since ownership and a voice in the company straddles that fine line between merely family-owner and head-honcho decision-maker. These may be roles some loved ones are designed to occupy. What are the issues that most directly affect you and your family? How can or will you work through them to pass on the business? These are not simple questions by any stretch. More to the point, succession is more a process of working out the solution than just offering up the plan. You might say that succession is always a process unique to each family and family business, but one during which it is essential to have a steady hand guiding the process.

Reference: The Business Journals (December 9, 2013) “5 tips for a successful family succession”

For more information, see www.jerryreiflawyer.com

Successful Family Business Succession Tips Mid-Michigan

Planning for your estate and planning for your business are one and the same. When you are a family business owner looking to pass the torch, the business is at once your greatest asset and likely the center of the family's wellbeing – but in another important sense planning for a business is not at all the same. You cannot afford to mess this up. Succession planning is unique because business is business, and so a successful succession is a careful one. There are a great number of moving pieces to your business and to your family. Nevertheless, there are some basic guiding principles to help tie it all together. A recent article in The Business Journals offers “5 tips for a successful family succession.” While you should consult the original article for the details, here are the “five tips”: 1. Be Transparent 2. Clarify Ownership Values 3. Plan Ahead 4. Consider Financial and Tax Ramifications 5. Stay Connected Essentially, respect the family as family and the business as business. Family is here to stay and everyone has to come out on top, while the business requires leadership, sharp decision-making, and a business mindset. It pays dividends to work with the family and maintain transparency regarding your plans to make the “handoff” and their plans to receive. Ownership is a big issue to clarify, since ownership and a voice in the company straddles that fine line between merely family-owner and head-honcho decision-maker. These may be roles some loved ones are designed to occupy. What are the issues that most directly affect you and your family? How can or will you work through them to pass on the business? These are not simple questions by any stretch. More to the point, succession is more a process of working out the solution than just offering up the plan. You might say that succession is always a process unique to each family and family business, but one during which it is essential to have a steady hand guiding the process.

Reference: The Business Journals (December 9, 2013) “5 tips for a successful family succession”

For more information see, www.jerryreiflawyer.com

Successful Family Business Succession Tips Saginaw, Michigan

Planning for your estate and planning for your business are one and the same. When you are a family business owner looking to pass the torch, the business is at once your greatest asset and likely the center of the family's wellbeing – but in another important sense planning for a business is not at all the same. You cannot afford to mess this up. Succession planning is unique because business is business, and so a successful succession is a careful one. There are a great number of moving pieces to your business and to your family. Nevertheless, there are some basic guiding principles to help tie it all together. A recent article in The Business Journals offers “5 tips for a successful family succession.” While you should consult the original article for the details, here are the “five tips”: 1. Be Transparent 2. Clarify Ownership Values 3. Plan Ahead 4. Consider Financial and Tax Ramifications 5. Stay Connected Essentially, respect the family as family and the business as business. Family is here to stay and everyone has to come out on top, while the business requires leadership, sharp decision-making, and a business mindset. It pays dividends to work with the family and maintain transparency regarding your plans to make the “handoff” and their plans to receive. Ownership is a big issue to clarify, since ownership and a voice in the company straddles that fine line between merely family-owner and head-honcho decision-maker. These may be roles some loved ones are designed to occupy. What are the issues that most directly affect you and your family? How can or will you work through them to pass on the business? These are not simple questions by any stretch. More to the point, succession is more a process of working out the solution than just offering up the plan. You might say that succession is always a process unique to each family and family business, but one during which it is essential to have a steady hand guiding the process.

Reference: The Business Journals (December 9, 2013) “5 tips for a successful family succession”

For more information, see www.jerryreiflawyer.com

 

Successful Family Business Succession Tips Saginaw, MI

Planning for your estate and planning for your business are one and the same. When you are a family business owner looking to pass the torch, the business is at once your greatest asset and likely the center of the family's wellbeing – but in another important sense planning for a business is not at all the same. You cannot afford to mess this up. Succession planning is unique because business is business, and so a successful succession is a careful one. There are a great number of moving pieces to your business and to your family. Nevertheless, there are some basic guiding principles to help tie it all together. A recent article in The Business Journals offers “5 tips for a successful family succession.” While you should consult the original article for the details, here are the “five tips”: 1. Be Transparent 2. Clarify Ownership Values 3. Plan Ahead 4. Consider Financial and Tax Ramifications 5. Stay Connected Essentially, respect the family as family and the business as business. Family is here to stay and everyone has to come out on top, while the business requires leadership, sharp decision-making, and a business mindset. It pays dividends to work with the family and maintain transparency regarding your plans to make the “handoff” and their plans to receive. Ownership is a big issue to clarify, since ownership and a voice in the company straddles that fine line between merely family-owner and head-honcho decision-maker. These may be roles some loved ones are designed to occupy. What are the issues that most directly affect you and your family? How can or will you work through them to pass on the business? These are not simple questions by any stretch. More to the point, succession is more a process of working out the solution than just offering up the plan. You might say that succession is always a process unique to each family and family business, but one during which it is essential to have a steady hand guiding the process.

Reference: The Business Journals (December 9, 2013) “5 tips for a successful family succession”

For more information, see www.jerryreiflawyer.com

Dealing With The Holiday “Skunks” Saginaw, MI

The holidays have a wonderful way of bringing families together around the same table like no other time of the year. These get-togethers, however joyful, can be fragile on many levels. While we all know the old saw about avoiding arguments over religion and politics, there are other potential skunks that can spoil the festivities. Unfortunately, some of these skunks are subjects that really do need to be addressed while the family is available for discussion. For example, a recent article in DailyFinance is rather blunt: “Boomers Need to Talk About Long-Term Care.” Baby boomers are the forever young generation, or so it seemed. Facing the facts of aging can be tough for anyone. Nevertheless, no one has a greater vested interest in your long-term care needs than your family. If they must travel across the country to attend your holiday feast, how available will they be when you need assistance with the basic “activities of daily living”? Have you honestly come to grips with how you will pay for long-term care, let alone the logistics of such care? On the other hand, Jeff Brown wrote a recent article in Forbes in which he decries the notion of a formal multi-generational “family meeting” to hash out all kinds of unpleasant financial and estate planning matters. Appropriately, the article is titled “No Money Talk At The Holiday Table, Please.” Brown offers an alternative: his own indirect method of eliciting information and offering subtle, albeit unsolicited advice to family members on financial and legal matters. Practically speaking, there is no better place to talk about important family financial and legal matters that when you are with family. Maybe you held your family meeting already, somewhere in between turkey and football. If you did not, well, then there are more holidays to come. Is it time to have a talk with your loved ones?

Reference: DailyFinance (November 27, 2013) “Boomers Need to Talk About Long-Term Care”

Forbes (November 26, 2013) “No Money Talk At The Holiday Table, Please”

For more information, see www.jerryreiflawyer.com

Leaving Your Business By Design Saginaw, MI

If you are a small business person, what will your last day at work be like? More to the point, what will your last day at work mean to the business you created? The answer hinges on whether your exit will be by design or by default. To exit your business by design requires coordinating your personal estate with the estate of the business. Oftentimes the two are intertwined. Ask yourself the question recently posed in the title of a recent Forbes article: “How Will You Leave Your Small Business The Last Time?” Will you sell it? Apparently as many as a third of business owners surveyed by the author planned to do so. However, the business brokerage industry reports a successful sales record of not much more than 20%. Going to pass it on to the next generation? Some 14% of survey respondents said they were, but only roughly 30% of family businesses actually continue to the next generation. In either case, the numbers simply do not add up well for casual business exit planning. Just as you have worked hard to build your business, it seems you will need to work hard to successfully leave it. Accordingly, plan now for that last day or risk losing your investment by default.

Reference: Forbes (November 4, 2013) “How Will You Leave Your Small Business The Last Time?”

For more information, see www.jerryreiflawyer.com

Family Meetings – More Than Just Fun Saginaw, MI

As in so many other matters in life, communication is key when it comes to estate planning. In a very real sense, the entirety of an estate plan – from the advance health directives covering your end-of-life decisions down to the distribution of your assets – is all about communication. Not all decisions, however, are easily and clearly communicated in writing. For many, this means holding a “family meeting.” If the term “family meeting” conjures little more than memories of classic TV shows, (e.g., the “Brady Bunch”), then you are not alone. As addressed in a recent article on WealthManagement.com titled “Family Meetings Come of Age,” the family meeting can be a very useful forum for estate planning. A family meeting, whatever that may mean for you and your loved ones, represents a conscious act to come together and openly communicate. All families are different, too. The family meeting for one family may be more of a means to relay information, while for another family there may be more collaboration on the planning itself. In the end, as long as there is something to communicate, there is value to the family meeting. As the original article notes, it is really up to you and your loved ones to shape the event together.

Reference: WealthManagement.com (November 7, 2013) “Family Meetings Come of Age”

For more information, see www.jerryreirlawyer.com

 

Leaving Your Business By Design Mid-Michigan

If you are a small business person, what will your last day at work be like? More to the point, what will your last day at work mean to the business you created? The answer hinges on whether your exit will be by design or by default. To exit your business by design requires coordinating your personal estate with the estate of the business. Oftentimes the two are intertwined. Ask yourself the question recently posed in the title of a recent Forbes article: “How Will You Leave Your Small Business The Last Time?” Will you sell it? Apparently as many as a third of business owners surveyed by the author planned to do so. However, the business brokerage industry reports a successful sales record of not much more than 20%. Going to pass it on to the next generation? Some 14% of survey respondents said they were, but only roughly 30% of family businesses actually continue to the next generation. In either case, the numbers simply do not add up well for casual business exit planning. Just as you have worked hard to build your business, it seems you will need to work hard to successfully leave it. Accordingly, plan now for that last day or risk losing your investment by default.

Reference: Forbes (November 4, 2013) “How Will You Leave Your Small Business The Last Time?”

For more information, see www.jerryreiflawyer.com

Making The Most Of Your Business Sale Saginaw, MI

It is so easy to pour your life into the business. You may even regard the business as your life, especially if you love the work and it is a family business to boot. Unfortunately, for many a business owner the life after the business seldom gets the attention and planning it requires. If you might wish to sell your business in the future for the good of your future life, then there is much planning to do even now. Since the business is such an integral part of your personal wealth, and perhaps also of your family wealth, planning time is time well invested. Thinking about, planning for, and knowing when to pull the trigger on the sale is just good life-planning. It can be tricky, too. Forbes gave a few tidbits of wisdom on the topic of maximizing your business sale and the ensuing wealth in a recent article titled “How Business Owners Maximize Personal Wealth Selling Their Companies.” The article provides three steps worthy of consideration. Essentially, you must plan to put the business in the right place to be bought, plan to put the family and yourself in the right place to sell, and plan to come to the negotiation table ready to get what you need. Because your business, your family and your life goals are unique, be sure you “measure twice (at least) and cut once” when it comes to this major event. There are no mulligans you can use once the ink is dry and the money has changed hands regarding your business sale.

Reference: Forbes (October 1, 2013) “How Business Owners Maximize Personal Wealth Selling Their Companies”

For more information, see www.jerryreiflawyer.com

 

 

Business Succession – A Lesson From The Royals Mid-Michigan

Likely you have seen and maybe read a steady stream of articles on the subject of “business succession.” As the demographics reveal, there is a tidal wave of aging baby boomer business owners who will be passing the baton by design or by default. The latter is a much messier affair than the former. If you are a baby boomer business owner, then consider a family that has some real life experience in managing successful successions – the Royal Family. For some royal perspective and thoughts on the young Prince George Alexander Louis (the instant media darling and infant son of Prince William and Kate Middleton), WealthManagement.com recently offered an article titled “A Lesson from the Royals: Succession Is a Two-Way Street.” Succession really is a two way street. In one lane, it is the king stepping down to name his successor. In the other lane, it is his successor seeking to prove himself worthy to be the king. The principal is the same in business, and yes, even in small family businesses. The perennial problem is that a business requires tested leadership and ability. Unfortunately, real life experience is a very difficult thing to acquire until you are actually holding the reins. That noted, few business owners are comfortable handing over reins even to their own successors. If you are a would-be-king, then there are some principles to learn to prove yourself, to stand out, and to step up to the task on your own. Fortunately, the original article offers some practical advice. And then there is the other side. As the current business owner – king of all you oversee – you also need to be mindful to give your successor some “playing time” while you can coach them. The actual act of transferring the business can be complicated, for reasons legal and financial. As with any “dance,” timing is key. If your family business is worth keeping afloat, then the successful succession of its leadership is as great a goal worthy of your time and focus. The Owner has retired; God save the Owner.

Reference: WealthManagement.com (August 30, 2013) “A Lesson from the Royals: Succession Is a Two-Way Street”

For more information, see www.jerryreiflawyer.com

 

Business Succession – A Lesson From The Royals Saginaw, MI

Likely you have seen and maybe read a steady stream of articles on the subject of “business succession.” As the demographics reveal, there is a tidal wave of aging baby boomer business owners who will be passing the baton by design or by default. The latter is a much messier affair than the former. If you are a baby boomer business owner, then consider a family that has some real life experience in managing successful successions – the Royal Family. For some royal perspective and thoughts on the young Prince George Alexander Louis (the instant media darling and infant son of Prince William and Kate Middleton), WealthManagement.com recently offered an article titled “A Lesson from the Royals: Succession Is a Two-Way Street.” Succession really is a two way street. In one lane, it is the king stepping down to name his successor. In the other lane, it is his successor seeking to prove himself worthy to be the king. The principal is the same in business, and yes, even in small family businesses. The perennial problem is that a business requires tested leadership and ability. Unfortunately, real life experience is a very difficult thing to acquire until you are actually holding the reins. That noted, few business owners are comfortable handing over reins even to their own successors. If you are a would-be-king, then there are some principles to learn to prove yourself, to stand out, and to step up to the task on your own. Fortunately, the original article offers some practical advice. And then there is the other side. As the current business owner – king of all you oversee – you also need to be mindful to give your successor some “playing time” while you can coach them. The actual act of transferring the business can be complicated, for reasons legal and financial. As with any “dance,” timing is key. If your family business is worth keeping afloat, then the successful succession of its leadership is as great a goal worthy of your time and focus. The Owner has retired; God save the Owner.

Reference: WealthManagement.com (August 30, 2013) “A Lesson from the Royals: Succession Is a Two-Way Street”

For more information, see www.jerryreiflawyer.com

 

Is Your Business Your Retirement Nest Egg, Too? Saginaw, MI

As a business owner, your business and your life are pretty hard to separate. Your business partner or right-hand employee may be a spouse, a sibling or that college roommate. Chances are your assets are entirely bound up in the company, and you might even intend to sell the business to fund your entire retirement. Not so fast! This was the advice given in a recent New York Times article titled “Sell a Business to Cover Retirement? Don’t Count on It.” When it comes to your business, you might be OK with the idea that it is empowering your financial life (or is it your life that is empowering the business itself?). Regardless, there will come a time when you and the business must part. This will be one of the most important events in your life and in the life of your business. Question: will this even be planned or just happen? If the business is your greatest asset, you are just going to sell it and live comfortably in retirement, right? Perhaps. What if it is not worth as much in the market as it is in your mind? If the business is your principal retirement asset, then knowing its value and preparing it for the transition is of utmost importance. This transaction will determine your future well-being, and perhaps the future well-being of your entire family for a long time. Accordingly, this transition will take structuring and forethought. Will your business be your retirement? If yes, then it is never too early to structure the transaction.

Reference: The New York Times (July 24, 2013) “Sell a Business to Cover Retirement? Don’t Count on It”

For more information, see www.jerryreiflawyer.com

 

Business Succession Success Hinges On Succession Planning Saginaw, MI

Closely-held businesses are just not like other assets. You have to think differently about how you are going to pass them along through the family or make other arrangements. In other words, when a family business is part of the mix, you do not have the luxury of mere planning your estate. No, you must plan for the business succession. What if you do not make plans for your estate or the business? Well, it gets messy. Generally, matters default to the probate court to sort things out. Sometimes this sorting depends on dusty state laws of “intestate succession” that provide a one-size-fits-all plan of distribution based on your “degrees” of family relationships. In the absence of proper legal planning, the question likely is whether the family (let alone business) will survive the process. For more on this subject, you might want to read a recent article in The New York Times titled “Surviving a Succession Without a Plan.” The original story is, in many ways, a happy one. The family rises up to reclaim the business and it returns. That said, it is a story of two sisters. While these were very capable sisters, they were never brought up in the business or with the goal of running the business. To save the business, however, these sisters had to fight through an inter-family conflict, a rebellious employee and even a downward dive into the red before finally taking over and saving the business. Unfortunately, the sisters could have been spared all of this anguish had their father simply created a succession plan.

Reference: The New York Times – You’re The Boss (June 25, 2013) “Surviving a Succession Without a Plan”

For more information, see www.jerryreiflawyer.com

 

Business Succession Success Hinges On Succession Planning Saginaw MI

Closely-held businesses are just not like other assets. You have to think differently about how you are going to pass them along through the family or make other arrangements. In other words, when a family business is part of the mix, you do not have the luxury of mere planning your estate. No, you must plan for the business succession. What if you do not make plans for your estate or the business? Well, it gets messy. Generally, matters default to the probate court to sort things out. Sometimes this sorting depends on dusty state laws of “intestate succession” that provide a one-size-fits-all plan of distribution based on your “degrees” of family relationships. In the absence of proper legal planning, the question likely is whether the family (let alone business) will survive the process. For more on this subject, you might want to read a recent article in The New York Times titled “Surviving a Succession Without a Plan.” The original story is, in many ways, a happy one. The family rises up to reclaim the business and it returns. That said, it is a story of two sisters. While these were very capable sisters, they were never brought up in the business or with the goal of running the business. To save the business, however, these sisters had to fight through an inter-family conflict, a rebellious employee and even a downward dive into the red before finally taking over and saving the business. Unfortunately, the sisters could have been spared all of this anguish had their father simply created a succession plan.

Reference: The New York Times – You’re The Boss (June 25, 2013) “Surviving a Succession Without a Plan”

For more information, see www.JerryReifLawyer.com

 

Business Succession Success Hinges On Succession Planning Saginaw, MI

Closely-held businesses are just not like other assets. You have to think differently about how you are going to pass them along through the family or make other arrangements. In other words, when a family business is part of the mix, you do not have the luxury of mere planning your estate. No, you must plan for the business succession. What if you do not make plans for your estate or the business? Well, it gets messy. Generally, matters default to the probate court to sort things out. Sometimes this sorting depends on dusty state laws of “intestate succession” that provide a one-size-fits-all plan of distribution based on your “degrees” of family relationships. In the absence of proper legal planning, the question likely is whether the family (let alone business) will survive the process. For more on this subject, you might want to read a recent article in The New York Times titled “Surviving a Succession Without a Plan.” The original story is, in many ways, a happy one. The family rises up to reclaim the business and it returns. That said, it is a story of two sisters. While these were very capable sisters, they were never brought up in the business or with the goal of running the business. To save the business, however, these sisters had to fight through an inter-family conflict, a rebellious employee and even a downward dive into the red before finally taking over and saving the business. Unfortunately, the sisters could have been spared all of this anguish had their father simply created a succession plan.

Reference: The New York Times – You’re The Boss (June 25, 2013) “Surviving a Succession Without a Plan”

 For more information, see www.jerryreiflawyer.com

Business Succession – Don’t Shoot Your Own Feet Saginaw, MI

A family is strongest when it comes together, and so too for a family business. Unfortunately, all too often a family can fall into infighting and this can outright sabotage family business succession. How do you protect the family and the business through succession? A recent article in Bloomberg Businessweek, titled “New Wrinkles on How Family Businesses Sabotage Themselves,” examines this subject from a fresh perspective. The article highlights four fundamental pitfalls to avoid: • Fairness: While parents may want to treat their children equally, when it comes to the family business this is not a good idea. In other words, reward according to merit much like non-family employees. • Conflict Avoidance: Bring in directors and advisors who are not “in” the family or emotionally related to the family. Independence can help call out the awkward elephants in the room before it is too late. • Triangulation: Resolve “family issues” within the family. No one else really needs to see non-business dirty laundry. • Bullying and Scapegoating: Some family members may try to control difficult situations and even escape personal responsibility by attacking and blaming others. Stop it early. Yes, family businesses can fall victim to their own families. Whether due to good intentions or to rivalries that have existed since childhood, you need to be wary of family problems sabotaging the family business.

Reference: Bloomberg Businessweek (June 17, 2013) “New Wrinkles on How Family Businesses Sabotage Themselves”

For more information, see www.jerryreiflawyer.com

 

Employee Skin In The Game – Family Business Stock Saginaw, MI

Some businesses are family owned, but not run by members of the family. So, how do you make such non-family key employees act like they are owners? Give them skin in the game. The most common form of “skin” in the game is company stock. Done right, this approach can be a win-win for all parties involved. That said, great caution is due; beware, as described in a recent WealthManagement.com article titled “The Tyranny of Minority Shareholders.” Structuring your family business for the future is not an easy task. What of value in life is? While each company and family is different, making a key employee a part owner certainly can give them added incentive to run things when the family cannot or will not. On the downside, you can create tension between the family owners and the key employee turned minority shareholder. For example, conflicts can arise should the majority owners (i.e., the family members) take actions in their own self-interests without considering the concerns of the minority owners (i.e., non-family members). In some cases, a minority shareholder can be protected by state and federal laws as in the case discussed in the original article regarding the Empire State Building IPO. Even if you do not own an international landmark, there are many ways you, your family, your non-family executives, and, yes, your business, can find a happy medium. However, it takes time and qualified counsel to structure things correctly.

Reference: WealthManagement.com (June 20, 2013) “The Tyranny of Minority Shareholders”

For more information, see www.jerryreiflawyer.com

 

Business Succession – Don’t Shoot Your Own Feet Great Lakes Bay Region, MI

A family is strongest when it comes together, and so too for a family business. Unfortunately, all too often a family can fall into infighting and this can outright sabotage family business succession. How do you protect the family and the business through succession? A recent article in Bloomberg Businessweek, titled “New Wrinkles on How Family Businesses Sabotage Themselves,” examines this subject from a fresh perspective. The article highlights four fundamental pitfalls to avoid: • Fairness: While parents may want to treat their children equally, when it comes to the family business this is not a good idea. In other words, reward according to merit much like non-family employees. • Conflict Avoidance: Bring in directors and advisors who are not “in” the family or emotionally related to the family. Independence can help call out the awkward elephants in the room before it is too late. • Triangulation: Resolve “family issues” within the family. No one else really needs to see non-business dirty laundry. • Bullying and Scapegoating: Some family members may try to control difficult situations and even escape personal responsibility by attacking and blaming others. Stop it early. Yes, family businesses can fall victim to their own families. Whether due to good intentions or to rivalries that have existed since childhood, you need to be wary of family problems sabotaging the family business.

Reference: Bloomberg Businessweek (June 17, 2013) “New Wrinkles on How Family Businesses Sabotage Themselves”

For more information, see www.jerryreiflawyer.com

 

Dementia – Plan Now To Avoid Problems Later Saginaw, MI

Dementia is not really a disease in the classical sense. There is no healthy one minute, then sick the next progression. No, dementia is just a slow and barely perceptible decline. Unfortunately, decline is hard to understand. So, when is an individual in decline and when are financial decisions still safe? A recent Forbes article titled “Aging Parents, Dementia And Financial Decisions: What Is Safe?” chronicles the story of one family and family business against the backdrop of dementia and decline. In truth, there is no real test because dementia and financial choices simply do not avail themselves to conclusive testing. That said, it is essential that family members be steadily involved, understanding, and concerned. “Mara” in the original article is a perfect example. Because Mara was involved, understanding and concerned, she was able to spot the “signs” of dementia before her mother lost the family business and estate due to poor decisions, increasing confusion and perhaps even those willing to take advantage of the situation. In the end, Mara not only had to spot the signs, she also had to get the help and coordination of a doctor to step in and assist. Much stress and strain resulting from dementia later on can be preemptively eliminated by proper legal planning right now. Be sure to consult with qualified legal counsel to ensure that you, your loved ones and your assets are protected.

Reference: Forbes (June 26, 2013) “Aging Parents, Dementia And Financial Decisions: What Is Safe?”

For more information, seee www.jerryreiflawyer.com

 

Incentive Trusts: A Business Succession Formula for Success Saginaw, MI

For those planning for the succession of their family business, there are some troubling statistics to consider when it comes to heirs and inheritance. While these statistics can be traced to a lack of motivation and hard-fought discipline, a trust may hold the key to success. This matter was addressed in a recent article in the Journal of Financial Planning titled “Investing in Future Generations: Evolution of the Business Skills Trust.” First, the troubling statistics: “Less than one-third of family businesses survive the transition from the first to the second generation, and only about 10 percent survive the transition to the third generation, according to stats reported in the Harvard Business Review.” While wealth can be transferred through a bit of effort on the planning side, it is not the same as transferring the motivation and the ability to pull it off thereafter. How can a trust help with motivation and to train up ability? That depends on how you frame the trust and the conditions you set to slowly bring a beneficiary/heir up to speed. The original article has some very specific advice, but the main point is that incentive-based trusts are a powerful tool. If you have a business that needs to be run, and a legacy to leave behind, then you could do well with an incentive trust plan. So, what values do you enshrine in the trust and how do you offer incentives? The answers to these and other salient questions are specific to each and every situation and family.

Reference: Journal of Financial Planning (June 2013) “Investing in Future Generations: Evolution of the Business Skills Trust”

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Selling Your Company to Your Employees Saginaw, MI

Sometimes the family business simply can’t stay in the family any longer. On the other hand, maybe you are not enamored with handing it over to an outsider either. If this sounds like your horns of dilemma, have you considered making your transfer in-house? When all is said and done, the only ones who know and care enough about the company may just be your employees. Sound intriguing? If yes, then you need to explore a win-win means through which your employees can become owners. Have you ever heard of an Employee Stock-Ownership Plan, or ESOP? ESOPs have been growing in popularity, especially when the market was down and outside buyers were scarce. That said, their popularity has not waned, although ESOPS can be a strange and complicated breed. Essentially, an ESOP mixes a family exit strategy with a company retirement plan. There is a great deal to it with many layers of protection regarding the operations and management of the business. Of course, there are some that are wary of the ESOP model. MarketWatch recently featured the ESOP and some criticisms of the approach in an article titled “When founder cash out, do workers lose?” Some of the criticisms are broad generalizations, especially as to the topic of valuation. Other criticisms are well taken. As the article points out, this does affect the employees by opening them up to some of the risks of actual ownership. Is this a good thing? It can mean a whole new kind of motivation and source of innovation, as many have experienced, but it can also become a tricky game of all-your-eggs-in-one-basket for employees-turned-owners. There is a reason some people have the mettle to be owners and others are content to be employees. From success stories to criticisms there are many voices talking about the ESOP. The original article is worth reading for due diligence purposes if you are on the employee side of the table. Regardless, an ESOP can be a very special tool for all parties at the table and one worth understanding and, just maybe, putting into force.

Reference: MarketWatch (May 17, 2013) “When founder cash out, do workers lose?”

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Charging Order Challenges Great Lakes Bay Region Saginaw, MI

Choosing the structure of your business is about more than just taxation. You want a structure that protects you from liabilities of the business itself. In fact, the very structure of your business is a means to protect both you and your business, so it’s worth understanding and maintaining. Have you heard of charging orders? These are legal wedges creditors use to try and drive a wedge between you and your business. If your business is an LLC (Limited Liability Company) or an LP (Limited Partnership), then there is more you should know about charging orders, as detailed in a recent Forbes article titled “The Misunderstood Charging Order.” While this is a complex subject, basically a charging order is a creditor’s first and last tool to extract your interests and capital from your business (assuming they don’t try to pierce the veil). In a corporation, a charging order can allow a creditor to actually gain a debtor’s stock interests in the business. This can be disastrous. “Limited” company structures are specifically designed with charging order protection, something that could be important to you as a business owner. The original article goes into greater detail, but essentially the charging order protection means that while a creditor can place a lien on your LLC membership interests and claim any distributions, a creditor cannot claim the membership interest itself and sabotage the business. Certainly there is much more to know on the subject of asset protection, to include the subject of company structure. Although some of this discussion can become tediously academic, it’s important to understand where and how your asset protection vulnerabilities can arise.

Reference: Forbes (April 30, 2013) “The Misunderstood Charging Order”

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The ESOP Way to Business Succession Win-Win

In the alphabet soup of company forms (S-Corp, C-Corp, LLC, LLP, LP, LTD., and so on and so forth) there is a growing turn toward a slightly more obscure acronym: the ESOP. So, what is an ESOP, what can it do, and is it right for your business? ESOPs, or Employee Stock Ownership Plans, are a tricky breed. Essentially, an ESOP is a tool recently highlighted by Congress and featured by The Wall Street Journal in an article titled “Founders Cash Out, but Do Workers Gain?” Planning to exit a business is all about doing one of two things; either restructuring the business or selling it outright. With an ESOP you accomplish both goals and build the company around the very employees that compose the company in the first place. Rather than going out and hunting for a buyer, the employees become vested in the stock ownership of their own company. In turn, the ownership stake simultaneously becomes a retirement asset while the ownership of the founder is bought out. Now, if you are already familiar with this approach, it may be worth reading the original article since there are certain limitations affecting the employees-turned-owners. The article gives examples of how an ESOP can work a win-win for all concerned under the right circumstances. These examples include Bob’s Red Mill, for example, or, from a different industry, Manson Construction Co. ESOPS have been a powerful tool in an otherwise soft market for business transfers. Accordingly, ESOPS are worth a good look, and then even a second look, as a unique and proven business succession strategy.

Reference: The Wall Street Journal (April 17, 2013) “Founders Cash Out, but Do Workers Gain?”

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Business Transfers – Less Taxing is Less Taxing

Your business is more than a personal asset and the economic engine that provides for your family, your employees and yourself. Passing down the family business is one of the most important and difficult experiences. The good news is that there are plenty of tools for exiting the family business, with varying degrees of complexity. Sometimes, however, a simple buy-sell arrangement is the right tool for the task. This was the subject of a recent article in Forbes titled “Exiting The Family Business: Tax Tips And Techniques,” which included some important tax and planning pointers. At its most basic level, the simple efficiency of a buy-sell arrangement is easy to understand and appreciate. Commonly, the owner (and parent, likely) is going to need retirement income to retire. However, the family business was their only source of income and their greatest asset. As a result, selling the business within the family allows the successor generation to assume control in a way that guarantees the financial well-being of the retiring parent and the entire family. This transfer can be accomplished with an outright sale-purchase. On the other hand, a buy-sell agreement can work the sale-purchase over time in installments. Consequently, the founder may even gift some portions away and sell others. A key point, whether gifting or selling, is having an accurate valuation of the business. If the value is too low, then the “sale” price looks more like a “gift.” Problem: if the value is deemed too low, then this catches the interest of the IRS. This never is a good thing. A sale of anything carries with it tax implications. When it comes to selling (or gifting) a business, you will want to connect all of the dots. The original Forbes article discusses many of those dots and offers practical tax moves to stay out of trouble. While there are significant limitations to the buy-sell and there are other alternatives to evaluate, it is one means to kill two birds with one stone by providing retirement income to the seller.

Reference: Forbes (March 6, 2013) “Exiting The Family Business: Tax Tips And Techniques”

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Business Succession Rejections by Heirs

When it comes to the succession plans of a family business, there are many things to ponder when selecting an heir. Important attributes like responsibility, work ethic, and leadership are taken into consideration when deciding who choose for the business. One thing that you may have left out is what to do if your heir turns down the offer to take over the family business. Then what? If you are a family business owner, are you intending to keep the business in the family even as you step down from control? Have you considered the possibility of designating an heir who does not want the family business and do you have a “Plan B” to adjust your succession plans accordingly? The reasons why an heir may resist taking up the reins to the family business are many facetted, but that doesn’t necessarily mean they are making a final, informed decision. No, it may take time, talk, and some understanding, and there are lessons to be gleaned from a recent Forbes article on the subject titled “5 Ways Family Business Founders Can Change A "Made Up" Mind.” Deciding on a successor for your business can take patience, time and understanding. This aspect of estate planning isn’t just about your own wishes, but also about the hopes and dreams of your family members and heirs involved.

Reference: Forbes
(September 10, 2012) “5 Ways Family Business Founders Can Change A
"Made Up" Mind”

For more information, see www.jerryreiflawyer.com

 

Business Succession Rejections by Heirs

When it comes to the succession plans of a family business, there are many things to ponder when selecting an heir. Important attributes like responsibility, work ethic, and leadership are taken into consideration when deciding who choose for the business. One thing that you may have left out is what to do if your heir turns down the offer to take over the family business. Then what? If you are a family business owner, are you intending to keep the business in the family even as you step down from control? Have you considered the possibility of designating an heir who does not want the family business and do you have a “Plan B” to adjust your succession plans accordingly? The reasons why an heir may resist taking up the reins to the family business are many facetted, but that doesn’t necessarily mean they are making a final, informed decision. No, it may take time, talk, and some understanding, and there are lessons to be gleaned from a recent Forbes article on the subject titled “5 Ways Family Business Founders Can Change A "Made Up" Mind.” Deciding on a successor for your business can take patience, time and understanding. This aspect of estate planning isn’t just about your own wishes, but also about the hopes and dreams of your family members and heirs involved.

Reference: Forbes
(September 10, 2012) “5 Ways Family Business Founders Can Change A
"Made Up" Mind”

For more information, see www.jerryreiflawyer.com

 

Business Succession Rejections by Heirs

When it comes to the succession plans of a family business, there are many things to ponder when selecting an heir. Important attributes like responsibility, work ethic, and leadership are taken into consideration when deciding who choose for the business. One thing that you may have left out is what to do if your heir turns down the offer to take over the family business. Then what? If you are a family business owner, are you intending to keep the business in the family even as you step down from control? Have you considered the possibility of designating an heir who does not want the family business and do you have a “Plan B” to adjust your succession plans accordingly? The reasons why an heir may resist taking up the reins to the family business are many facetted, but that doesn’t necessarily mean they are making a final, informed decision. No, it may take time, talk, and some understanding, and there are lessons to be gleaned from a recent Forbes article on the subject titled “5 Ways Family Business Founders Can Change A "Made Up" Mind.” Deciding on a successor for your business can take patience, time and understanding. This aspect of estate planning isn’t just about your own wishes, but also about the hopes and dreams of your family members and heirs involved.

Reference: Forbes (September 10, 2012) “5 Ways Family Business Founders Can Change A "Made Up" Mind”

Business Succession Rejections by Heirs

When it comes to the succession plans of a family business, there are many things to ponder when selecting an heir. Important attributes like responsibility, work ethic, and leadership are taken into consideration when deciding who choose for the business. One thing that you may have left out is what to do if your heir turns down the offer to take over the family business. Then what? If you are a family business owner, are you intending to keep the business in the family even as you step down from control? Have you considered the possibility of designating an heir who does not want the family business and do you have a “Plan B” to adjust your succession plans accordingly? The reasons why an heir may resist taking up the reins to the family business are many facetted, but that doesn’t necessarily mean they are making a final, informed decision. No, it may take time, talk, and some understanding, and there are lessons to be gleaned from a recent Forbes article on the subject titled “5 Ways Family Business Founders Can Change A "Made Up" Mind.” Deciding on a successor for your business can take patience, time and understanding. This aspect of estate planning isn’t just about your own wishes, but also about the hopes and dreams of your family members and heirs involved.

Reference: Forbes
(September 10, 2012) “5 Ways Family Business Founders Can Change A
"Made Up" Mind”

Business Succession Rejections by Heirs

When it comes to the succession plans of a family business, there are many things to ponder when selecting an heir. Important attributes like responsibility, work ethic, and leadership are taken into consideration when deciding who choose for the business. One thing that you may have left out is what to do if your heir turns down the offer to take over the family business. Then what? If you are a family business owner, are you intending to keep the business in the family even as you step down from control? Have you considered the possibility of designating an heir who does not want the family business and do you have a “Plan B” to adjust your succession plans accordingly? The reasons why an heir may resist taking up the reins to the family business are many facetted, but that doesn’t necessarily mean they are making a final, informed decision. No, it may take time, talk, and some understanding, and there are lessons to be gleaned from a recent Forbes article on the subject titled “5 Ways Family Business Founders Can Change A "Made Up" Mind.” Deciding on a successor for your business can take patience, time and understanding. This aspect of estate planning isn’t just about your own wishes, but also about the hopes and dreams of your family members and heirs involved.

Reference: Forbes
(September 10, 2012) “5 Ways Family Business Founders Can Change A
"Made Up" Mind

Warning: Don’t Delay Your Wealth Transfers

With election time right around the corner, it’s easy to lose focus on your goals for 2012 as you vet out your favorite candidate. The end of 2012 is nearing faster than you may think, and you don’t want to forget about your wealth planning opportunities before they change in 2013. The estate laws of 2012 are generous and ripe for implementation. However, what will take effect on January 1, 2013 is anybody’s guess. One thing is clear: anything can happen in a divided and contentious lame-duck Congress. There’s simply nothing worse for wealth transfer planning than an unforeseeable future, but that’s exactly what we face. The auspices of 2012 and the unknowns of 2013 have been featured once more in Forbes. In a recent article titled “Should You Give Your Wealth To Your Grandkids Before December 31?,” this quandary is explored. Unfortunately, the question posed in the title of the article is not given easy answers. In the end, the how, when, whom and even how much issues must be addressed on a case by case basis. You know your own needs and assets. Fortunately, competent counsel can help you make navigate these issues. There is a lot to gain with the current 2012 wealth transfer laws, so act now when it comes to your gifting or trust plans. Your options may become extremely limited once the ball drops in Times Square.

Reference: Forbes (August 17, 2012) “How Having Your Name On Your Business Limits Your Options”

Careful Consideration for Naming Your Business

When it comes to naming your business after yourself, sometimes thinking about where you will end is lost in the mix. Should your business bear your name, or should the family business bear the family name? How will these choices affect your heirs in the future? While some may consider the decision a matter of personal or family pride, or even a matter of vanity, that doesn’t mean there aren’t important issues in play. The consequences of naming your business was tackled recently by Forbes in an article titled “How Having Your Name On Your Business Limits Your Options.” The essential point, however, is that putting your name on the company forges an inextricable link. On the plus side, this can be a boon if your business and brand do well, especially if your heirs carry on the business. On the down side, doing so may not be in the best interests of the business, or even your heirs. The Forbes article offers a review of some practical considerations and problems when choosing your business name. Remember, although it is a tough decision, you should begin your business with the end in mind.

Reference: Forbes (August 17, 2012) “How Having Your Name On Your Business Limits Your Options”

Family Farmers Should Keep a Weather Eye on the Estate Tax Exemption

The Joint Economic Committee recently released a report on the devastating power unleashed upon family farms when an estate tax is triggered. Simply titled “Estate Tax Report Released,” the committee also considered the broader impact on the economy. The report, approved by the American Farm Bureau Federation and examined in Farm Futures, notes that, while farm owners may have a great potential wealth … such wealth is tied up in land (an illiquid asset) and is not necessarily cash-in-hand. However, the IRS will hold you accountable for the estate taxes due on your land, even if you have to sell the land to pay for it. "When estate taxes on an agricultural business exceed cash and other liquid assets, surviving family partners are forced to sell illiquid assets, such as land, buildings, or equipment to keep their businesses operating," said AFBF President Bob Stallman. "With 88% of farm and ranch assets illiquid, producers have few options when it comes to generating cash to pay the estate tax." If you (or a loved one) own a family farm, then there is no time like the present to make proper estate plans to protect and preserve the farm and the family wealth it represents. You have worked hard to make a living from your farm. Isn’t it common sense to spend some time and money protecting and preserving it?

Reference: Farm Futures (July 26, 2012) “Estate Tax Report Released”

Family Farmers Should Keep a Weather Eye on the Estate Tax Exemption

The Joint Economic Committee recently released a report on the devastating power unleashed upon family farms when an estate tax is triggered. Simply titled “Estate Tax Report Released,” the committee also considered the broader impact on the economy. The report, approved by the American Farm Bureau Federation and examined in Farm Futures, notes that, while farm owners may have a great potential wealth … such wealth is tied up in land (an illiquid asset) and is not necessarily cash-in-hand. However, the IRS will hold you accountable for the estate taxes due on your land, even if you have to sell the land to pay for it. "When estate taxes on an agricultural business exceed cash and other liquid assets, surviving family partners are forced to sell illiquid assets, such as land, buildings, or equipment to keep their businesses operating," said AFBF President Bob Stallman. "With 88% of farm and ranch assets illiquid, producers have few options when it comes to generating cash to pay the estate tax." If you (or a loved one) own a family farm, then there is no time like the present to make proper estate plans to protect and preserve the farm and the family wealth it represents. You have worked hard to make a living from your farm. Isn’t it common sense to spend some time and money protecting and preserving it?

Reference: Farm Futures (July 26, 2012) “Estate Tax Report Released”

Family Limited Partnerships – Worth Another Look (Especially This Year)?

Sometimes managing family assets is like, well, running a business. Then again, some families actually do run their families like businesses and have enjoyed significant tax advantages by doing so through the use of the Family Limited Partnership. A recent article in The New York Times titled “In an Unusual Tax Year, the Wealthy Turn to Partnerships” explores the power of the Family Limited Partnership (FLP). Properly structured, the FLP binds the family into a business arrangement (which is not always a good thing for a family) and, in doing so, allows for the longevity of a business entity, the decreased valuation allowable to private companies, and the simple ability to pool resources for higher investments. When used correctly, there is much to be said about the FLP structure. On the other hand, there also are limitations and even outright warnings. For one, no business can safely exist without a purpose, and to form your FLP without a discernible purpose beyond avoiding estate taxes will certainly raise the ire of the IRS. Furthermore, as already intimated, it means the family must act with the swiftness and assurance of a business in their investments. Unfortunately, not all families are capable of acting like a “business.” In the end, we face an uncertain and unpromising future in estate and gift laws (and a veritable “fiscal cliff” as a nation for related reasons). Nevertheless, at present we have extremely favorable lifetime gift tax exemptions ($5.12 million) for the remainder of 2012. This may be the perfect storm to consider harnessing this powerful tool to generate some security for your family and family investments.

Reference: The New York Times (July 6, 2012) “In an Unusual Tax Year, the Wealthy Turn to Partnerships”

Family Farmers Should Keep a Weather Eye on the Estate Tax Exemption

The Joint Economic Committee recently released a report on the devastating power unleashed upon family farms when an estate tax is triggered. Simply titled “Estate Tax Report Released,” the committee also considered the broader impact on the economy. The report, approved by the American Farm Bureau Federation and examined in Farm Futures, notes that, while farm owners may have a great potential wealth … such wealth is tied up in land (an illiquid asset) and is not necessarily cash-in-hand. However, the IRS will hold you accountable for the estate taxes due on your land, even if you have to sell the land to pay for it. "When estate taxes on an agricultural business exceed cash and other liquid assets, surviving family partners are forced to sell illiquid assets, such as land, buildings, or equipment to keep their businesses operating," said AFBF President Bob Stallman. "With 88% of farm and ranch assets illiquid, producers have few options when it comes to generating cash to pay the estate tax." If you (or a loved one) own a family farm, then there is no time like the present to make proper estate plans to protect and preserve the farm and the family wealth it represents. You have worked hard to make a living from your farm. Isn’t it common sense to spend some time and money protecting and preserving it?

Reference: Farm Futures (July 26, 2012) “Estate Tax Report Released”

Rules Can Keep Your Family Business and Family Together

intellectual challenges of business along with its financial rewards. How do you successfully transfer your family business within your family? It can be a tricky situation. One successful trick that CNNMoney recently highlighted is the power of rules. The article, titled “Family business: How to pass the baton,” is a story about the Mitchell family and the rules they developed to keep their family, as well as their business, intact. As the article illustrates, rules are a way of promising to yourself and future generations that you’ll maintain a strong shareholder’s agreement, operating agreement, or other founding document of the business itself. So, what guidelines will help keep your family together and in business at the same time? For some practical ideas, consult the original article for the “Mitchell” rules and consider how they might work for you family business.

Reference: CNNMoney (July 9, 2012) “Family business: How to pass the baton”

Family Limited Partnerships – Worth Another Look (Especially This Year)?

Sometimes managing family assets is like, well, running a business. Then again, some families actually do run their families like businesses and have enjoyed significant tax advantages by doing so through the use of the Family Limited Partnership. A recent article in The New York Times titled “In an Unusual Tax Year, the Wealthy Turn to Partnerships” explores the power of the Family Limited Partnership (FLP). Properly structured, the FLP binds the family into a business arrangement (which is not always a good thing for a family) and, in doing so, allows for the longevity of a business entity, the decreased valuation allowable to private companies, and the simple ability to pool resources for higher investments. When used correctly, there is much to be said about the FLP structure. On the other hand, there also are limitations and even outright warnings. For one, no business can safely exist without a purpose, and to form your FLP without a discernible purpose beyond avoiding estate taxes will certainly raise the ire of the IRS. Furthermore, as already intimated, it means the family must act with the swiftness and assurance of a business in their investments. Unfortunately, not all families are capable of acting like a “business.” In the end, we face an uncertain and unpromising future in estate and gift laws (and a veritable “fiscal cliff” as a nation for related reasons). Nevertheless, at present we have extremely favorable lifetime gift tax exemptions ($5.12 million) for the remainder of 2012. This may be the perfect storm to consider harnessing this powerful tool to generate some security for your family and family investments.

Reference: The New York Times (July 6, 2012) “In an Unusual Tax Year, the Wealthy Turn to Partnerships”

Family Business Mistakes Matter

If you have a family business, then a recent article in Inc. magazine is a must read to avoid unaffordable mistakes. In short, these mistakes can kill your family business. The Inc. article is titled the “4 Worst Legal Mistakes a Family Business Can Make.” While I commend the entire article to your reading, here is some of the wisdom offered by the author: 1. Do not mix your family finances with those of the business. 2. Do not muddle along without employment agreements. 3. Do not forget to get (and remain) street legal with appropriate licenses and filings. 4. Do not fail to have a succession plan. Remember, large or small, your business is just that – a “business.” If you treat the company accounts like your personal checkbook, hire and fire employees on a handshake (if that), ignore “legal formalities” attending the creation and operation of the business and take the “get-around-to-it” approach to the succession of the business, then do not be surprised when the business crashes and burns. Teaching point: Take time right now to engage competent legal, accounting and financial counsel to help you stay out of trouble … before it is too late.

Reference: Inc. (April 9, 2012) “4 Worst Legal Mistakes a Family Business Can Make

Family Meetings = Family Succession Success

Are you the head of a family business and perhaps the head of your family, too? Consider including your family when deciding the fate of your business. In short, a family meeting may be in order. Whether a family meeting is an emotional conversation or a very business-like exchange will vary from family to family and business to business. A New York Times article titled “Is My Family Business Going to Be an Orphan?” provides some firsthand wisdom and a practical template to follow.

Reference: The New York Times – You’re The Boss (April 25, 2012) “Is My Family Business Going to Be an Orphan?”

Family Business Mistakes Matter

If you have a family business, then a recent article in Inc. magazine is a must read to avoid unaffordable mistakes. In short, these mistakes can kill your family business. The Inc. article is titled the “4 Worst Legal Mistakes a Family Business Can Make.” While I commend the entire article to your reading, here is some of the wisdom offered by the author: 1. Do not mix your family finances with those of the business. 2. Do not muddle along without employment agreements. 3. Do not forget to get (and remain) street legal with appropriate licenses and filings. 4. Do not fail to have a succession plan. Remember, large or small, your business is just that – a “business.” If you treat the company accounts like your personal checkbook, hire and fire employees on a handshake (if that), ignore “legal formalities” attending the creation and operation of the business and take the “get-around-to-it” approach to the succession of the business, then do not be surprised when the business crashes and burns. Teaching point: Take time right now to engage competent legal, accounting and financial counsel to help you stay out of trouble … before it is too late.

Reference: Inc. (April 9, 2012) “4 Worst Legal Mistakes a Family Business Can Make”

Is Retiring from the Farm Harder than Leaving the Mob?

If you or someone you love is a farmer, then you know the special challenges that generally come with estate planning and, more specifically, the succession of the farm. Planning for your estate and for your family is a difficult concept, but it’s ever more difficult when it means planning for the land itself. A recent article from Drovers Cattle Network titled, “Commentary: Can you retire?” offers an interesting perspective on the farmer’s estate planning challenges. In the end, whether bovine, equine, or straight up agricultural, the problems are the same. Farms are living places in every sense of the word; any overseen gap in a farm is like a missed heartbeat. Will there be a missed beat or two between yourself and the next land cultivator? If yes, it may be more than either you or the land (the herd, the flock, or what have you) can bear. Planning for the farm succession is no easy feat in these generations, especially with youth more and more concentrated in urban locations/lifestyles and the farm a perennial casualty to the estate tax. It’s important to remember that any successful farm transfer is one that will have to begin early, with a well thought-out plan. How to transfer the farm is another matter, and a complicated one depending on your potential heirs, or buyers, and the farm itself. You owe it to yourself and to the land to appreciate these difficulties and form a full-fledged plan to deal with them. Be sure to engage competent legal counsel experienced in working with agricultural assets and farming families.

Reference: Drovers Cattle Network (May 28, 2012) “Commentary: Can you retire?”

Are Prenuptial Agreements in Vogue?

Regardless of who you are, what you do, who your loved ones are, and what you own, planning for your family and for your assets is a necessary and ongoing activity. Estate planning is a process, not an event. This is especially true when you and your family situation happens to be a little more complicated than most. In that case, proper planning is absolutely vital. What may be a trend for a new generation of complexities and one that is making headlines anew, believe it or not, is the prenuptial agreement. The recent murmurs about prenuptial agreements come like most financial news these days, by way of Facebook’s newlywed Mark Zuckerberg. A recent article in CBS MoneyWatch titled, “Why Mark Zuckerberg needs a prenup,” makes the case for his need for a prenuptial agreement. Zuckerberg and his millions (or whatever his net worth) aside, the prenuptial agreement has its place in an era of mixed families, divorces, remarriages, and all the other increasingly common family structures today. In addition, as pointed out in the original article, people are getting married later, or otherwise remarried, when they already have complicated assets. Divorces aside, complicated assets often necessitate complicated planning.

Reference: CBS MoneyWatch (May 19, 2012) “Why Mark Zuckerberg needs a prenup”

 

Family Business Mistakes Matter

If you have a family business, then a recent article in Inc. magazine is a must read to avoid unaffordable mistakes. In short, these mistakes can kill your family business. The Inc. article is titled the “4 Worst Legal Mistakes a Family Business Can Make.” While I commend the entire article to your reading, here is some of the wisdom offered by the author: 1. Do not mix your family finances with those of the business. 2. Do not muddle along without employment agreements. 3. Do not forget to get (and remain) street legal with appropriate licenses and filings. 4. Do not fail to have a succession plan. Remember, large or small, your business is just that – a “business.” If you treat the company accounts like your personal checkbook, hire and fire employees on a handshake (if that), ignore “legal formalities” attending the creation and operation of the business and take the “get-around-to-it” approach to the succession of the business, then do not be surprised when the business crashes and burns. Teaching point: Take time right now to engage competent legal, accounting and financial counsel to help you stay out of trouble … before it is too late.

Reference: Inc. (April 9, 2012) “4 Worst Legal Mistakes a Family Business Can Make”

Successful Family Succession Secrets

Getting the business started is one thing. While there are thousands of resources available to help a small business get off the ground, staying in the air is the real challenge. Certainly, this challenge is uniquely complicated within the context of a family business. Planning for the family business is as much art as it is science. Even though the law (science) is oftentimes fixed and immovable, the family dynamics (art) vary from one to the other. A recent article in The New York Times titled Family Businesses Learn to Adapt to Keep Thriving is not only spot on, but timely. According to the Family Business Institute, only about 30% of all family businesses survive beyond the founding generation. Ouch, but it gets worse. Thereafter, the success rate drops to 12% after the transfer to the third generation. The New York Times article identifies key traits common to a successful family business succession. One key to remember: If the business is a family business, then it is essential to treat the family as “family” and the business as “business.” In other words, avoid the temptation to “gift” positions in the business to family members, unless they truly are productive and motivated workers within the business itself. In the end, what is best for you, your family and your family business will depend on many factors. Plan accordingly and enlist qualified legal counsel early and often.

Reference: The New York Times (April 4, 2012) “Family Businesses Learn to Adapt to Keep Thriving”

Business Succession: Is 2012 The Year?

tax benefits for me to leave the business in 2012, rather than 2013?” Success in business is often dependent on good timing. Business owners time the market, time their sales, time their marketing, time their expansion, and just about everything else. Logically, then, succession planning for your business requires careful timing. A recent article in Businessweek, titled Family Businesses Should Plan Now for Rising Gift Tax, took up the matter of succession timing. In fact, the timing component of succession planning may be more important now than in recent times, especially given the state of gift and estate laws. The current exemptions and rates were the fruit of the “great compromise” between the White House and Congress at the end of 2010. The compromise created a lifetime gift tax of $5.12 million (adjusted for inflation) for 2012, but only guaranteed that amount until the end of 2012. As a result, if you want to transfer large assets – like a business – then 2012 may be the year. The current $5.12 million will default to $1 million at year’s end, unless the White House and Congress agree to retain the current exemption. So 2012 may be the year – perhaps the last year – to transfer large assets with such a generous tax exemption. Depending on the value of your business, 2012 may be the year to make your move. This is especially true if your business is valued at more than $1 million and would be at risk were the laws were to sunset. Of course, as a general rule of thumb, it is oftentimes easier (and more efficient) to transfer a business incrementally since, if nothing else, it can be monitored and protected at each stage. In the end, be sure to engage competent counsel before taking action. There are some very complex issues that need to be considered, to include valuing the business itself, structuring the transfer and a very open tax issue regarding a potential “clawback” in the future. This is not a DIY project.

Reference: Bloomberg Businessweek (March 19, 2012) “Family Businesses Should Plan Now for Rising Gift Tax”