Although Forbes recently reported that about 90% of family businesses have estate plans, less than a quarter of them are current. Even the most carefully drafted plan might become outdated. To successfully transition a family business, owners should routinely review:
- Life changes. How would a divorce, death, or incapacitation affect the immediate and long-term operations of a family business? Identifying risks and threats helps to structure estate plans with tools that can preserve assets according to one’s goals. For example, Family Limited Liability Companies (FLLCs) offer protection from spousal claims made in divorce and include business interruption protection if a family member becomes incapacitated, among many other benefits.
- External risks. Tax requirements, legislative changes, and creditors are potential threats to the wealth accumulated in a family business. Structuring the business appropriately can help mitigate these risks. For example, a case in 2014 highlighted the protections afforded to Limited Liability Companies (LLCs) in North Carolina. First Bank v. S&R Grandview, LLC showed that charging orders for debt collections placed against a member of an LLC do not remove the member’s ownership in the LLC.
- Sustainability. A current business structure and staff will likely evolve over time to ensure long-term success. Estate plans should consider long-term objectives of families and their businesses to find ways of supporting these values over time.
- Business succession plans. Some family businesses stay in the family for multiple generations. In these instances, children or other family members assume ownership over time. In other cases, an internal succession might not be possible. Family disinterest, poor candidates, or other factors might make other succession options, such as mergers, gifts, or public sales, more attractive. Learn more about business succession options in North Carolina.
- Business valuation. Determining how much a business is worth will affect several areas of estate planning. Tax matters, business interest division, and other areas should be regularly reviewed to ensure they are adequately addressed in estate planning documents. Economic shifts and market changes could favorably or unfavorably affect the value of a business; in either case, estate plans might need to adjust accordingly.
The issues of family businesses in North Carolina can be managed through estate planning, and the most effective planning is done far in advance and updated regularly. Doing so can help to preserve a family’s professional legacy and protect family wealth in the gradual shift in management.
By Samantha Reichle