Business Transfer

Typically the operating family has several children of whom only one or two want to continue the business personally. Assuming the family is harmonious and wants to keep the operation going as a family business, they need a reliable way to transfer ownership to the succeeding operator(s). The current operator usually is a parent with a number of active years remaining and who wants to maintain personal control of the business until retirement or death. And there may not be enough cash to give the non-active children who will leave the business their fair share of the family wealth.

Your natural inclination to give your children a share in the family business may not only benefit them, but also significantly reduce transfer taxes on your estate. With proper planning, you can shift the opportunity to earn income or gain wealth from yourself to a child without triggering transfer taxes. Some ways to do this are:

• Formation of a limited partnership – to insure that all family members receive equal equity shares, but with control vested in the hands of the operating heir. A possible way to avoid family conflict is to transfer the property to the new operator(s) by means of sale during the father’s lifetime.
• Creating multiple family businesses – rather than having children remain in the family business, you may want to have them set up a complementary or even competing business. Complimentary businesses may provide additional services to your customers. A child in a competing business may take some business away from you – and away from transfer taxes.
• Establish Irrevocable Trusts – a way to maintain control when shifting ownership. Using a irrevocable trust may provide creditor protection to the trust beneficiaries. When transferring a business opportunity that may quickly appreciate in value, an irrevocable trust can provide a number of advantages.
• Business-continuation agreement – an option that can be changed only by action of all the participants. This is a key consideration where the head of the family may be tempted to change his mind in later years, or where some of the heirs decide later they aren’t interested in keeping the operation in tack.

In having a plan in place, a realistic assessment of the business’s future and all contingencies down in writing, you can ensure the prevention of the kind of situation where operating heirs are forced to sell the business to pay estate taxes and attorney fees.

NOTE: Investment products offered through Enterprise Bank & Trust are:

• NOT FDIC insured
• NOT guaranteed by Enterprise Bank & Trust or any of its affiliates
• Subject to investment risk and may lose value