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Many small business owners intend to transfer their business to their children. They work hard to build a successful company to pass down to future generations. In this blog, our North Carolina estate planning attorneys discuss several ways to transfer your business to your children, including the benefits of business succession planning.
Business Succession Planning for the Family Business in North Carolina
Family businesses are very common throughout the Tar Heel State. Many of these businesses will be handed down to children and grandchildren. However, it is crucial that business owners engage in strategic estate planning and business succession planning. The benefits of a business succession plan as part of a comprehensive estate plan include:
- Ensure smooth operation of the company during and after the transfer for stability and continuity
- Prepare for an owner’s unexpected illness or injury (i.e., incapacitation planning)
- Protect company assets from attacks by your heirs’ creditors and spouses
- Determine who will take over the primary business operations
- Develop a tax strategy to minimize tax liability
- Facilitate conversations between family members now to avoid future disputes
- Protect company brand, reputation, and client base
- Choose and prepare potential successors for their future roles in the business
One of the most important components of business succession planning is determining how you will transfer your business to your children. The option that is best for you depends on your goals and circumstances.
Four Ways to Transfer Your Business to Your Children in North Carolina
When you meet with a lawyer to discuss business succession planning, the attorney may discuss several options for transferring the business to your children. The type of business you operate, the structure of the company, and other factors make some options better than others.
Four options for transferring a business to children are:
Through Your Will
You can bequeath the business to your children through your Will. It is simple and allows you to control your business until your death. However, transferring your company through your estate could have tax consequences. Additionally, if you become incapacitated before death without a business succession plan or exit strategy, your business may suffer.
Through a Buy-Sell Agreement
A buy-sell agreement transfers the business to your children during your lifetime. You could sell an interest in the business for a promissory note, a payment for fair market value, or a self-canceling installment note. Because there are many options you can choose for selling your company to your children, a buy-sell agreement may be a good option.
As a Gift Before Death
You may give all or a portion of the business to your children. If you structure the gift correctly, you may be able to avoid federal gift taxes. You can also decrease the taxable value of your estate. However, your children could have tax consequences, so you should discuss this option with a lawyer before gifting a business interest to your children.
Through a Trust
Instead of transferring the business to your children through your Will, you may want to transfer the business to a trust. There are several benefits of using a trust. You can be the trustee to maintain control of the business until your death or incapacitation. The trust also protects the business from your children’s creditors and spouses. There are many types of trusts, so you can design a trust that meets your needs.
Learn More During a Consultation With Our North Carolina Estate Planning Attorneys
Each of the above options has pros and cons based on your situation. The best way to ensure your company continues to thrive and your children receive the most benefit from the company is to work with an experienced attorney to develop a business succession plan. At Patrick, Harper, & Dixon, we help business owners create strategic plans for transferring their business to their now or after their death. Contact our office to schedule a meeting with one of our North Carolina estate planning attorneys to discuss your plans for your business.
