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According to family-owned business expert Dr. Joseph Astrachan
of Kennesaw State University, studies show that just 30
percent of family-owned businesses continue into the second
generation, and only 10 percent survive into the third.
Why? Reasons vary, but poor or nonexistent succession and
estate planning are certainly common.
While you may be charting a course for your small business
today, what will happen when you are no longer at the helm?
Perhaps you've already taken steps that may ease the transition
of leadership, particularly in the event of your death.
However, given the day-to-day pressures of running a business,
you may have put off this important area of planning. Here
are some factors to consider:
Who Takes Over the Business?
Having a written succession plan with specific instructions
could improve the chances that your wishes will be followed.
Solicit and incorporate input from your family and key staffers
in choosing your successor, and base your choice on experience
and abilities, not sentiment.
Keep or Sell the Business?
Your business may represent the bulk of the estate you leave
your family. Would your heirs be better off keeping the
business for income, or selling it and reinvesting the proceeds?
Once that decision has been made, a buy-sell agreement can
be used to establish the business's worth using a standard
valuation method, smoothing the transfer of ownership.
Are You Prepared for Estate Taxes?
The good news is, starting in 1998, the estate tax exemption
has been raised from $600,000 to $1.3 million for qualifying
family-owned farms and businesses. Nonetheless, the marginal
estate tax rate still tops out at 55 percent. Strategies
such as lifetime gifts to family trusts and charitable remainder
trusts may help reduce the amount of estate assets lost
to taxes.
What About Liquidity?
Your family may need assets that can be converted quickly
to cash to pay estate taxes and continue operating the business.
Life insurance policies are one way to help provide for
the availability of ready cash.
Succession strategies and estate planning can help your
small business survive into the next generation and provide
a livelihood or assets for your heirs. Remember, what you
set in place today with the help of your legal advisor can
help ensure that your wishes are carried out.
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