If you run a family business, you might want it to continue after you pass away. To ensure your business succeeds once you are gone, you must create a succession plan. This is an essential part of estate planning for any business owner.
Planning how your company will continue is crucial to protecting the wealth of your family. There are a few different ways you can transfer the business, and here are some of the most common methods:
1. Create a buy-sell agreement
Enacting a buy-sell agreement is ideal in the following two situations:
- The business has multiple owners.
- You know who you want to transfer ownership to.
In this document, you can specify that the successor will obtain ownership after a triggering event. Common events that may trigger a transfer of ownership include incapacity, death and retirement.
2. Sell it outright
You may choose to simply sell your interest in the business immediately. This is a viable method if you need income from your business. If you sell your company to your children, make sure you sell it at fair market value. If you do not sell it at a fair price, you may incur gift taxes.
3. Use a living trust
A living trust is one of the best ways to leave your business to your family. The first thing you need to do is transfer your business to a trust then name the person you want to run the business as a successor trustee. There must be specific provisions about the business operations and what will happen if you die or become disabled. This option lets you run your business for as long as you want to.
These are three common ways that people pass on their businesses to their families. If you have concerns about retaining the legacy of your company, consider these options to keep your operation going after you are gone.