Ways to Transfer a Family Business to a Successor

 Posted on October 13, 2013 in Beneficiaries

You have put a lot of time and effort into your business.  If you have a family successor in mind, then it is important to make sure that the transfer goes smoothly.  Now might be the best time to work up a succession plan while interest rates are still low which means transfer tax costs will be low.

There are a few different ways to transfer ownership rights.  Depending on your specific situation each option has certain benefits.

The first way to transfer ownership is an outright sale.  Selling your business in this manner allows you to receive payment right away which is nice for your retirement plans or if you need cash right away for any reason.  Then your successor will be able to take control of the family business right away.

Another way to protect your business is by making a buy-sell agreement.  The benefit of this sort of transfer is that the price and terms of the sale are set up in advance of the sale to protect both parties in case the owner is no longer capable of operating the business. This kind of contract kicks in when a specific event occurs such as retirement, incapacity, and death.

The last option to consider is transferring ownership is by using a living trust.  The business must be transferred into the trust then the successor should be named for the trust.  The benefit of this arrangement is that the business owner can stay in their position for as long as they want.   The document itself should outline considerations for how the business should be operated if the owner becomes disabled or dies, much like a buy-sell agreement.  The benefit of this kind of transfer will allow you to avoid the costly probate process and other estate tax issues.

If you want to transfer your hard work to your son or daughter, then the best option is to create a revocable living trust.  Contact an experienced estate planning attorney in DuPage County who can help you navigate through planning your business succession.