Family business should be addressed realistically in estate plan | Estate Planning
Family businesses are the backbone of many families and communities. When the owner of a family business passes away, their loved ones are often the ones who inherit the business.
Sometimes, however, this inheritance does not align with their plans and they aren’t interested in continuing the business. When this happens, consulting with a professional to sort out this part of a person’s estate might be a good idea.
Howard Rabb, managing partner at Dworken & Bernstein Co., LPA in Cleveland, and Julie Taft, partner at Taft Law’s Cleveland office in the private client group, discussed the steps a person may want to take to settle their loved one’s business affairs when they do not want to take it over.
Rabb recommended hiring a business broker in the event that no one wants to take over the family business.
“They would hire a business broker and they would sell the business,” Rabb said.
He noted that in the event that the business is left to more than one heir, the executor of the estate would divide the assets among them.
“The business broker would sell the company on behalf of a probate estate or on behalf of a trust, and that’s how the owner would have held it,” Rabb explained. “When the business broker sells it on behalf of the trust, on behalf of the estate, that trust or that estate – which is a will – is what defines where things go. The executor of the estate or the trustee of the trust would divvy it up.”
Taft explained that when no heir wants to take over the family business, an estate plan might designate the assets upon sale of the business to children or a charity. It is best for the deceased owner to have made these plans prior to their death, she said.
“If you don’t have a plan in place beforehand, whoever is inheriting it is going to have to come up with a plan pretty quickly and meet with attorneys, accountants, what have you, to review the records and help determine the best course of action for a sale,” she said.
The heir or heirs may benefit from meeting with an attorney or an accountant to find out if there is a market for the sale of the business, Taft suggested.
“Find out whether there’s a market for it – depending on what the type of business is, it could be something that’s really easily sellable,” she said.
A growing concern that determines whether there is a market for the business is whether it is easy to keep operations going, Taft pointed out.
The goal is to be fair among all of the heirs, whether or not one or more of them want to take over the business, she explained.
“It’s really a problem that is addressed very well with estate planning and succession planning, where maybe one child works in the business and one child doesn’t, and it’s an age-old issue where you want to be fair to both kids,” Taft said.
In this case, having a plan in place in which one child gains the business and the other receives insurance or other assets could be a good idea, she added.