A main concern for families that own businesses or farms is how to protect those investments so that they survive the transition from one generation to the next. A well-known example of a successful family-owned business is Wal-mart. However, an overwhelming 90% of all businesses today are family-owned, according to the Family Firm Institute.
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Sadly, nearly that many (70%) family businesses are unable to survive the generational transfer, due mostly to estate taxes and probate fees. Protecting family-owned business and farms, seen by many as a symbol of the family’s heritage, is very important. Estate planning is the most efficient method for protecting this important symbol.
Farms Often Face Unique Problems with Cash Flow.
Ever heard the phrase, “land rich, cash poor?” It refers to the fact that many farms have all of their cash tied up in equipment, structures, livestock and the land itself, but essentially no cash on hand. The farm’s net worth may be very notable, and estate taxes are determined by the current market value of all of the farm’s assets. This becomes a problem when the heirs are required to come up with the cash needed to pay estate taxes. Because the value is tied up in tangible assets, the family may be forced to sell resources, or the farm itself, in order to pay the taxes and settle all other estate costs. Proper estate planning can address this problem.
Estate Planning for Family-Owned Businesses and Farms in Reno
The two most common estate planning challenges for family-owned businesses and farms in Reno, Nevada, are (1) how to preserve the family’s business so it will transfer intact to the next generation, and (2) how to distribute the business among the heirs equitably. Overcoming these two challenges requires advance planning for estate taxes and employing particular strategies to provide the family maximum control over when, how and to whom ownership of the business will transfer.
A useful succession plan is required in order for a family business to transfer, in one piece, to the next generation. The plan should provide the financial independence of the owners as they retire, as well as place the business in a position for continued growth and success. The proper estate planning steps can make this happen. The process involves establishing goals and objectives, an appropriate decision-making process, a succession plan for future generations and estate plans for the business and the owners.
Family Business Succession Planning
A succession plan includes designating the family successors as managers and owners of the business. A determination must also be made as to whether any additional support for the successors will be required from other family members. The specific roles of any other family members (both active and non-active) should then be identified. All of these roles and duties need to be carefully considered.
Create an Estate Plan for the Business and the Owners
Succession of the business is crucial, and so is creating an estate plan for the business itself and the owners. The tax implications arising with the sale or transfer of ownership, must be addressed in order to minimize the tax debt. If the business owner already has an estate plan in place, it is a good idea to review the plan. If you have any questions, or need assistance, in planning for the growth and protection of your family-owned business or farm in Reno Nevada, consult with our estate planning attorneys.