family-business-succession-planning

As of July 2021, the lifetime exemption is $11.7M per person and $23.4M per married couple. However, we expect a significant reduction in the lifetime exemption due to President Biden’s tax proposals, if not this year, then no later than December 31, 2025.

As a result, common questions we are hearing are:

  • How will gifting affect my lifestyle?
  • Will this adversely affect our children?

Parents desire to ‘treat each of our children fairly.’ Therefore, ‘if I’m going to gift to one child, I need to give my other children a similar amount. Splitting the cake in half may seem like the simplest solution, but where there is a business involved, it is common for at least one family member to be employed and some children not engaged in the business. In these situations, the go-to strategy is to gift the business stock to the active children and real estate or other assets to those not involved.

As you consider your options, the most critical question to consider when gifting is, ‘will the asset be MEANINGFUL to your child’?

Meaningful usually is defined as INCOME PRODUCING.

To those active in the business, receiving stock means they have the opportunity to grow the business and usually be compensated accordingly (salary, bonus,  distributions, etc.).

Unfortunately, I often see business owners only focusing on minimizing taxes by gifting equity to get it out of their estates. While this is very important for succession and estate planning, often lost is the impact on their children who receive assets that are not meaningful to their child. Let me explain:

When a child receives an interest in business real estate or stock (often via an LLC or trust), but there are no distributions, the gifting strategy inadvertently sows the seeds of resentment. I have witnessed many business owners’ children who have received an interest worth millions but,  they will need to wait until you die before the asset becomes meaningful, giving them income to impact lifestyle. Their thinking is, ‘I need it now while I’m raising children, have a mortgage, college expenses, etc.

Often complicating the situation is that their sibling is working in the business and receiving all the perks afforded by this involvement, usually translated in the active child enjoying a higher standard of living than the non-involved sibling. Granted, each child made their own decision as to whether or not to get involved in your business. But every parent I know wants their children to have good relationships with each other. What you don’t want is your children becoming resentful of their siblings. So, how to prevent this?

MEANINGFUL does not mean EQUAL!

While the value of assets gifted may be in the millions, ‘meaningful’ income will usually be significantly less. However, $25,000, $50,000, or $100,000 is often a game-changer for most young people raising families. By receiving income, each child benefits from your generosity NOW, versus having to wait until you are gone to enjoy the financial benefits of being in your family. This way, they can concentrate on what they have versus comparing their lifestyle to their siblings.

Click the following link to read the complete article on the Digital Dealer website: Grateful or Resentful: What Will Your Estate Planning Produce?

Read the article and then reach out to us to get some insights into your own situation. A few moments with us will provide you insight and clarity for your next steps forward. Contact Us




Personal Financial Planning

Estate planning is a complex endeavor, especially for owners of capital-intensive complex business’. Throw active and inactive family into the mix and trying to figure out what is fair, how to provide opportunities for the next generation without enabling them, and maintain family harmony.

Click the following link for more drill-down resources on Personal Financial Planning.

In complex family and business environments, it is imperative to lean on expert legal and tax advice who specialize in the same size business and estate as you.  We are not attorneys or CPAs but know experienced advisers if you are looking for sophisticated advisory services.

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We can help you with insights, other resources, and see if it makes sense to work together. At the very least, in 30 minutes, you may get some ideas you can apply to your business right away.