The business you built is likely the result of years of hard work and effort. You may dream of having the business also serve as your legacy long after you die. If you leave your ownership interest to someone you love and trust, they could continue operating the business for the rest of their life. They might even pass it on to someone else in their estate plan decades after they receive it from you.
While the idea of an intergenerational transfer of business ownership is appealing, it is not without its difficulties. Doing business with family can easily become complicated, and estate planning adds a whole separate layer of complexity to the situation. If you hope to have a close family member purchase or inherit the business you have built, you will likely need help planning for that eventual change of ownership.
Transitioning sooner rather than later can keep the process smooth
If you want to continue working and don’t intend to retire, giving up ownership now might seem unnecessary. However, it will be much harder for someone to take over your position if they must do so abruptly when you are no longer there to support them.
Helping your loved ones start training now can make sure they’re ready to assume authority when the time comes. You could potentially groom them to have them replaced by a board of directors or leave them your ownership interest, depending on how you structured the business. You can continue working for the company in an executive position or possibly just in an advisory role.
There are financial and tax implications the passing ownership to someone else
If you decide to have a family member start managing the business now, you might enter into an agreement to have them make payments on the value of your ownership interest. On the other hand, you might simply bequeath it to them in your last will.
Transferring a business as part of your estate might mean incurring substantial estate taxes. However, there can also be tax implications for forgiving a loan as part of your estate. Once you decide who you want to take over the business, you need to think carefully about how to train them, when they should assume authority and how to minimize tax risks.