If you are a business owner you need to think not only about routine estate planning but also what will happen with your business when you retire, die or become incapacitated. Recent studies show that approximately 27% of family owned or family managed businesses worldwide will change hands in the next five years. However, less than 50% of such businesses have any sort of succession plan in place.
There are a number of different succession planning options available to business owners. Among the more common are a sale of your ownership interest to a partner or partners. If you do not have a business partner, or you want a child to take over your interest in the business, you can bequeath your ownership stake to your children through your will, or use any number of lifetime transfer techniques to gift some or all of the business to your children. Other options include selling the business to a child or children, to employees or to an unrelated third party. Any one of these options may allow you to achieve your goals. However, depending on your situation one of the preceding options will generally stand out as the best choice.
If your business is small and one or more children are interested in the business, you may want to simply pass ownership through your will. If the business is larger and you need to reduce the size of your estate for tax purposes or you need money for retirement, some form of gift or sale to a child may be the optimal strategy. Lastly, if you do not have a child with any desire for the business, he or she is not the proper person to run the business or you foresee years of friction and squabbling between family members, you may want to sell out to an unrelated party. Most importantly, you should start thinking about business succession early and consult with qualified advisors to assist you with planning and implementation.