Transitioning Wealth

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Building business value and establishing family security are not separate tasks, but parallel goals that are intimately related and must be addressed simultaneously. We are talking about using business prosperity to provide family security in a tax-efficient way. In this blog you will learn more about transitioning wealth through business succession.

Most of My Wealth Consists of My Business. What Should I Consider in Planning its Transition?

When a person creates a business from scratch and makes it a life’s work, at some point he or she must confront the issue of business succession. The first step is to decide if the business should be sold or kept in the family. There are both retirement and estate distribution issues to consider. If a person can afford to keep the business after retirement, the question of who will manage it becomes very important.

Another consideration is who will ultimately get the business. Should it be divided equally among all the children, or should it be directed to only the children who are active in the business? Should there be a buy-sell agreement or first right of refusal to purchase the business? Should the children who have elected to work outside the business get stock or should they get other assets? Is it appropriate to equalize the division or should some other measure of fairness be used?

The issue most commonly encountered is a lack of cash available to the younger generation for the purchase of the business. Long-term retirement income can be accumulated by the retiring generation if the younger generation can grow the business, and if the retiring generation is interested in coaching the younger generation.

Ultimate decisions will also be dependent to some degree on the size of the business. There’s a world of difference between planning for a $2 million business and planning for a business worth $100 millions or more. As your business increases in value, your plans for family security need to reflect the new realities and responsibilities of greater wealth.

Too often, we begin our plans with assumptions. But as you begin to plan, it’s important to check your assumptions against real family needs and desires. This is a good time to discuss values: What is important to you and your family? What moral or spiritual principles are most important? What are the basic beliefs and underpinnings you rely on to make business and family decisions? Is there a need to protect your lifestyle? Do you wish to provide a college education for future generations? Do the children want to take over the business or do they have other plans? Does philanthropy play a role and if it does, on what scale and toward which issues or charities?

The Chicagoland attorneys at Anthony J. Madonia & Associates can assist with making decisions based on your personal value system. Call (312) 578-9300 to get in touch with someone who can help you plan for the future of your family and your business.