Small businesses are the engines for innovation. They not only account for 75% of all businesses in the U.S., they also provide for over 50% of jobs. It is readily apparent that small businesses are vital to the U.S. economy and help shape our great nation. Yet, a majority of small businesses fail to pass to the next generation. Even worse, only 13% of small businesses survive to the third generation. Why is this? As Benjamin Franklin said, “failure to plan is planning to fail.”
Think of business succession planning as a plan to manage issues that create a smooth transition between you and the future owners of your business. With family businesses, succession planning can be especially complicated because of the relationships and emotions involved - and because most people are not that comfortable discussing topics such as aging, death, and their financial affairs. In most cases, the "killer" is taxes or family discord, both issues that a good family business succession plan will cover.
When considering your business succession plan, it is easiest if you break your planning into three main issues: management, ownership, and taxes. Let’s start with the easy one. Estate taxes. Currently, the Unified Credit (the coupon the federal government gives everyone to pass their assets upon death free from estate tax) is set at $3.5 million. In 2011, it drops to $1 million. Any excess is taxed at approximately 50%. If a person dies owning a successful small business, that business may have to be liquidated to pay the estate tax.
Let’s assume that either the estate tax is not an issue. What other issues may derail all the hard work someone put into growing a business? It could just be family dynamics. Sibling rivalry could hinder the succeeding generation for management. Or the older generation may not wish to let go of management because of the fear of losing their leadership role in the family. Or there may be different expectations and ideas on the direction the business should grow in the future. Consider the sacrifices the founding member made to make the business successful. 80 hour work weeks. Missing baseball games and dance recitals. The younger generation may not understand or appreciate the hard work.
So what can be done? First, ensure that the business is structured properly so that it may be passed easily to the next generation and ease the tax burden if needed. There are many, many ways to do this based upon the goals of the family.
Second, schedule family meetings where business planning such as short and long term strategies are discussed. It is important that the older generation explain the values in which the business was started and grown, while the younger generation decides whether they are willing to manage the business and if so, what direction they envision the business heading. These meetings are also an opportune time to facilitate identifying if, or which child can be groomed to be an heir. Erase the concept that the only fair thing to do is to divide the business equally between your children. While this is a nice idea in theory, it may not be in the best interests of your business. Remember that management and ownership are separate business succession planning issues. It may be fairer for the successor(s) you have chosen to run the business to have a larger share of business ownership than family members not active in the business. Or it may be best to transfer both management and ownership to your chosen successor and make other financial arrangements to benefit your other children. Consider inviting a third party advisor, the business’s CPA or attorney, to identify this protégé.
Finally, it may be that the next generation simply does not want the family business. While that can be disheartening, it is best to address this issue when both the business owner and business is healthy. If you want to pass your family business along to the next generation, putting off business succession planning is the worst thing you can do. By discussing the issues with the family and creating a plan unique to your business and your family you can ensure that you have the funds you need to retire and that the business you have built continues to thrive in the hands of the next generation.
Stephen J. Lacey, JD, LLM-Tax is a partner in the law firm of McClelland, Jones, Lyons, Lacey & Williams, LLC. Mr. Lacey concentrates his practice in the areas of Estate Planning, Asset Protection, Medicaid Planning, Probate and Real Estate. To contact Stephen call (321) 984-2700 or visit www.mjlandl.com.
Tuesday, October 20, 2009
Sunday, October 18, 2009
We Are Excited To Join You At...
The Brevard Association of Human Services – 2009 BAHS Annual Senior Health Fair
November 11, 2009
8:00am – 1:00pm
Hilton Rialto Hotel
For More Information Click Here >>
November 11, 2009
8:00am – 1:00pm
Hilton Rialto Hotel
For More Information Click Here >>
RAISE YOUR HAND IF YOU NEED AN ESTATE PLAN
There is a common misconception that estate planning is only for the rich. So let’s do a test to determine whether you need an estate plan.
Now imagine you have everyone you care about in your left hand, your family, friends, maybe a charity or even if it is only your dog and in your right hand, you have everything you own, all of your stuff. Now imagine someone has a gun to the head of someone in your left hand and tells you give me all of your stuff or I pull the trigger. What do you do? You give him all of your stuff. Congratulations, you need an estate plan. The reason is that you just said that you care more about the people that matter, then about your stuff. Now, let’s consider what matters to you:
Do you want to make sure you give your stuff to whom you want, when you want and the way you want?
Are you concerned about your assets going to a second spouse’s family after you have passed away? We have all heard stories of one spouse passing away, getting remarried then passing away without an estate plan. All of your assets are now passed to second spouse. Who do you think is going to benefit from her estate plan?
Do you have a child or relative with special needs? The loss of governmental benefits can devastate an estate. Moreover, designating someone (and their successors) to ensure that the child always has someone assisting him or her throughout their lifetime.
Do you want to safeguard your stuff for your spouse in case you must join the millions of residents in nursing homes at $75,000 per year? Unfortunately, nearly half of people over the age of 65 will need nursing home care during their lifetime. Proper planning is essential to not only preserve assets but also to create the most choices for your care.
Do you want to protect your stuff from your children’s creditors or divorce after your passing? Make sure your stuff is inherited by the people you want, not by their ex-spouses, creditors or the IRS.
Do you want to avoid the “lottery Winner Syndrome” whereas your beneficiaries spend all the stuff that you spent your whole life building within 18 months? Giving a child more money is not going to make them more happy, it seems that often it makes them less productive and less happy. Encourage and reward your children for making smart life decisions and not depleting all of your stuff.
Do you want to designate someone to manage your affairs if you become disabled? Without a Power of Attorney, Health Care Surrogate or sometimes a Revocable Trust, if you become disabled and unable to make decisions for yourself, someone will be forced to open an expensive and lengthy guardianship proceeding so decisions may be made for your benefit.
Do you want to designate someone to care for your minor children if something happens to you? In Florida, if a minor child receives money from an inheritance (this includes designated beneficiaries) exceeding $15,000, then a guardianship must be created for the benefit of the child until they reach 18. Moreover, do you want to designate who is raising your child? Do you want to designate someone who has similar values, religious views, educational goals, etc. as you do? Or do you want to leave it to chance?
Are there specific charities that are near and dear to your heart? If you do not create an estate plan to assist such beneficiaries, then those charities will not benefit from your estate.
If your answer is yes to any of these questions, then raise your hand, you need an estate plan.
Stephen J. Lacey, JD, LLM-Tax is a partner in the law firm of McClelland, Jones, Lyons, Lacey & Williams, LLC. Mr. Lacey concentrates his practice in the areas of Estate Planning, Asset Protection, Medicaid Planning, Probate and Real Estate. To contact Stephen call (321) 984-2700 or visit www.mjlandl.com.
Now imagine you have everyone you care about in your left hand, your family, friends, maybe a charity or even if it is only your dog and in your right hand, you have everything you own, all of your stuff. Now imagine someone has a gun to the head of someone in your left hand and tells you give me all of your stuff or I pull the trigger. What do you do? You give him all of your stuff. Congratulations, you need an estate plan. The reason is that you just said that you care more about the people that matter, then about your stuff. Now, let’s consider what matters to you:
Do you want to make sure you give your stuff to whom you want, when you want and the way you want?
Are you concerned about your assets going to a second spouse’s family after you have passed away? We have all heard stories of one spouse passing away, getting remarried then passing away without an estate plan. All of your assets are now passed to second spouse. Who do you think is going to benefit from her estate plan?
Do you have a child or relative with special needs? The loss of governmental benefits can devastate an estate. Moreover, designating someone (and their successors) to ensure that the child always has someone assisting him or her throughout their lifetime.
Do you want to safeguard your stuff for your spouse in case you must join the millions of residents in nursing homes at $75,000 per year? Unfortunately, nearly half of people over the age of 65 will need nursing home care during their lifetime. Proper planning is essential to not only preserve assets but also to create the most choices for your care.
Do you want to protect your stuff from your children’s creditors or divorce after your passing? Make sure your stuff is inherited by the people you want, not by their ex-spouses, creditors or the IRS.
Do you want to avoid the “lottery Winner Syndrome” whereas your beneficiaries spend all the stuff that you spent your whole life building within 18 months? Giving a child more money is not going to make them more happy, it seems that often it makes them less productive and less happy. Encourage and reward your children for making smart life decisions and not depleting all of your stuff.
Do you want to designate someone to manage your affairs if you become disabled? Without a Power of Attorney, Health Care Surrogate or sometimes a Revocable Trust, if you become disabled and unable to make decisions for yourself, someone will be forced to open an expensive and lengthy guardianship proceeding so decisions may be made for your benefit.
Do you want to designate someone to care for your minor children if something happens to you? In Florida, if a minor child receives money from an inheritance (this includes designated beneficiaries) exceeding $15,000, then a guardianship must be created for the benefit of the child until they reach 18. Moreover, do you want to designate who is raising your child? Do you want to designate someone who has similar values, religious views, educational goals, etc. as you do? Or do you want to leave it to chance?
Are there specific charities that are near and dear to your heart? If you do not create an estate plan to assist such beneficiaries, then those charities will not benefit from your estate.
If your answer is yes to any of these questions, then raise your hand, you need an estate plan.
Stephen J. Lacey, JD, LLM-Tax is a partner in the law firm of McClelland, Jones, Lyons, Lacey & Williams, LLC. Mr. Lacey concentrates his practice in the areas of Estate Planning, Asset Protection, Medicaid Planning, Probate and Real Estate. To contact Stephen call (321) 984-2700 or visit www.mjlandl.com.
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