Combine succession planning with liquidity planning

By Amy Kane, Brooks Rarden

Regardless of the size of their companies, all business owners should create a succession plan that meets their personal needs as well as the needs of the business. A well-thought-out and well-executed personal plan provides greater opportunities for generational wealth creation and helps reduce anxiety. 

Here are some questions family business owners should consider as a first step in the planning process.

Is a family member willing — and able — to take over the business after you exit? Many business owners need an exit plan that provides retirement income for themselves and their spouses. With proper planning and time to address these issues, a strategy can be developed that provides an income stream for the retiring leader.

Should you establish trust funds for your children/grandchildren? If you want your children and grandchildren to benefit from the sale of your business, it may be more beneficial — for both you and them — to establish a trust and fund it with business interests before the ownership transition. Simple planning techniques implemented before an event can significantly increase the transaction value for the family as a whole. In addition to being tax-efficient, a trust allows you to establish provisions governing how and when money will be distributed to your heirs.

How will each family member handle the wealth? Take time before the liquidity event to educate the family and discuss your goals and expectations. Many business owners begin the education process well in advance of a transition. Turning over a small amount of money to family members gives them experience in working with an adviser and offers insight into how each individual might invest (or spend) in the future. This information can be helpful in determining whether to turn over future assets outright or in trust.

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