Estate planning for Iamily businesses

f) rcur Now Is a great time to underl\take family business estate planning-asset values are low, many senior generation members are worn out by turbulent business cycles and seeking relief from the daily grind, and "NextGen" family members are nearing middle age.

Most family business owners, when it comes to estate planning, make things too complicated. The process can seem daunting, so below is a short menu of options that might give you the clarity you seek for moving ahead.

Issue #1: "I don't know how to plan my estate because I don't know how to dispose of my business."

When it comes to disposing of a family business, big or small, there are only four choices: close the doors, give it away, sell it to insiders, or sell it to outsiders.

Closing the doors doesn't make much sense for a company with future potential, and owners who are closing their doors won't be interested in this article, so let's dispose of option one.

The other three options-or a combination of them-are all viable when it comes to transferring the family business. For example, you could elect to give 49Vo of your business to your children while selling them 26Vo and selling 25Vo to a valuable key employee so that she'll have a piece of the action. Once you've made this decision, estate planning becomes much easier due to the fact that most closely held business owners have between 50Vo and957o of their assets tied up in their business operations.

Issue #22 "l have three kids and I'm unsure how to be fair to them."

The top two tried-and-true alternatives for promoting family fairness are (1) pass or sell company stock only to employee children while non-employee children inherit other assets or (2) divide all assets, business and nonbusiness alike, equally among your children. Either option can work well if it's carefully planned and equitable. ments to discover how assets-including the family company-are distributed. Talk about an opportunity for some ugly surprises!

If you're going to pass assets to your children equally, they'll need mutual protections. That is, nonemployee children must be protected from employee children who might declare that all company cash flows should come to them in the form of performance bonuses, leaving nonemployee children out in the cold. Likewise, employee children may need protections from non-employee owners who may arbitrarily seek to ovemrle their employee siblings, interject themselves in business decisions, change an employee child's compensation, or unilaterally reward themselves from company treasury.

Parents and adult children should sit down and talk rationally about their hopes, dreams and wishes for the future. If that conversation won't go very well in your family, enlist advisors or an objective third party to facilitate. You can find out now or find out later; there's rarely any advantage in putting these discussions.

Issue #4: "l know I need to begin planning, but I don't know a good advisor in my area."

Come on! That's really a poor excuse not to take action. Most people find quality professionals through word of mouth. If that doesn't work, use research guides like MartindaleHubbell, which catalogs top attorneys in the country by specialty; contact your local bar association or Society of Certified Public Accountants; research certified financial planners in your area, or simply do a web search. Any option should turn up several professionals with whom you might at least begin the discussion.

We certainly don't want to minimize the process of estate planning. It can be a complicated and technical. However, most estates are fairly simple to plan. The most important thing is taking the first step. Once you move forward and create positive momentum, things always seem clearer.

Mutual protections should be just that: mutual. The goal is fairness and equitability. If you're worried, in spite of mutual protections, that your children may not get along or may not understand the reasoning behind the planning, the senior generation can retain voting stock for a time, in order to let things settle down.

Issue #32 "[don't want to upset my children by doing something in the estate planning process they won't like later, and I'm just not sure what their reactions might be."

Ask theml lt's never made a great deal of sense that most estate planning takes place in a vacuum. That is, Mom and Dad go to their advisors and maP out an estate strategy, put the documents into a drawer, and hope the fateful day doesn't come for a long time. When it does inevitably arrive, advisors and children read the docu-

In the 1990s, we were working with a dealer-since deceased-who was worth about $20 million. He was putting off estate planning because of difficulty over an asset he owned with a partner. The asset represented about 2.5Vo of his total net worth, but it was consuming a great deal of his time and attention. We looked him in the eye and said, "Are you seriously going to tell us that as a businessman you are going to let the troublesome 2.57o of your assets stand in the way of planning for the other 97.57o?" He looked at the ceiling for a minute, considered what we were saying, and said, "You're right, let's get started."

Doing something is vastly preferable to doing nothing, and now is a great time for smart estate planning.

- Wayne Rivers is president of Family Business Institute, Raleigh, N.C. Reach him at wayne.rivers@familybusinessinstitute .com or ( 877 ) 326-2493

Reprinted with permission of Key Resources LLC portion of this article may be reproduced withoul its Dermission.

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