On April 26, 2013

Statistics compiled by the Institute of Family-Owned Businesses paint a grim picture of the reality these businesses face when it comes to inheritance. Most do not survive passage from the first to the second generation, and 70 percent fail during the second generation. The numbers get worse with each successive transfer of ownership and power. Of all family-owned businesses, 97 percent either close or transition outside the family by the fourth generation.

Estate planning can go a long way toward providing a successful transition, according to those few who have weathered such transitions and the president of First Business Brokers based in Colorado. Some of the common pitfalls that must be considered are the percentage of ownership by beneficiaries, the readiness of a chosen heir to assume leadership responsibilities and the tax implications of a full versus partial transfer.

Most successful transitions are the result of taking deliberate steps to address each of the common problems. Every business organization thrives off accumulated knowledge and experience. This makes it important for the current owner to spend time discussing the history of the business with an heir as well as providing the necessary training to make wise decisions in the future. Addressing this and legal issues increases the potential for success.

Whether a business is intended to be passed to the next generation or not, owners and their families will benefit from clearly defined asset distribution. Drafting estate planning documents may be a complicated process, but it could prevent fights among family members and reduce tax implications. Individuals seeking to preserve assets for future generations may find assistance with an experienced estate planning attorney.

Source: The Colorado Springs Business Journal, “Passing torch creates family business stress,” Monica Mendoza, April 9, 2013

Categories: Estate Planning

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