One of the biggest concerns for family business owners and farmers is protecting those businesses so that they survive the transition from one generation to the next. According to the Family Firm Institute, about 90% of all businesses today are family-owned, including Wal-mart.
Unfortunately, over 70% of family businesses do not survive that transition, due in large part to estate taxes and probate fees. In Fayetteville Arkansas, a family-owned business, farm or ranch is considered by most to be a symbol of their family’s heritage. So it is important to protect that heritage in the best way possible. Estate planning is the best way to do just that.
Farms are often Land Rich, Cash Poor
One of the problems that is unique to farms is that they are “land rich, cash poor.” What does that mean? The typical farm usually has thousands, if not millions, of dollars tied up in equipment, livestock, structures and the land itself. The farm’s net worth may be impressive, but the cash flow is another story. However, when estate taxes are determined, they will be based on the current market value of all of the farm’s assets. But if the heirs cannot come up with the cash needed to pay those estate taxes, they will be forced to sell the farm or a majority of its resources just to pay the taxes and settle any other costs. This is another situation where estate planning can be critical.
Estate planning solutions for Fayetteville Arkansas Family-owned businesses and farms
There are primarily two estate planning challenges that most family-owned businesses and farms in Fayetteville Arkansas face:
- How to preserve the business so that it can pass on intact to the next generation
- How to equitably distribute the business among the heirs
Achieving these two goals requires advance planning for estate taxes and implementing certain strategies that will give the family maximum control over how, when and to whom the ownership of the business will transfer.
In order for a family business to survive to the next generation and beyond, a viable succession plan must be put into place that will provide the financial independence of the retiring owners, and position the business for continued success and growth. There are certain steps that can be followed to make this happen. First, the family must establish its goals and objectives for the business, establish a decision-making process, establish a succession plan and finally, create a business and owner estate plan. These last two steps can be easily taken with the assistance of an Estate Planning Attorney.
Family Business Succession Planning
A succession plan entails identifying who the successors will be, both managers and owners of the business. The roles of all family members must also be identified, including both active and non-active roles. Finally, it must be determined whether any additional support for the successors may be required from other family members. All of these roles and duties should be considered and well thought out.
Create a Business and Owner Estate Plan
Succession of the business is an important factor, but so is estate planning for the business itself and the owner of the business. Tax implications for the owner and the business, upon the sale or transfer or ownership, must be planned for in order to minimize tax debt. If the business owner already has an estate plan in place, it should also be reviewed to minimize tax issues and perhaps, avoid unnecessary delays in the transfer of stock to the remaining owners or spouses.
