Thinking about retirement? It’s important to get started on family business succession issues early, even as many as 10 years or more before you are ready to retire. Starting that far in advance gives you time to ponder what you would like to accomplish and talk to your advisors and your family about your ideas.
Items to initially consider are:
What is your "event" for retirement?
- Your age?
- Younger generation age?
- Personal financial benchmark?
- Company financial benchmark?
What does "retirement" mean for you?
- Reduced operational work hours?
- No operational work hours?
- Special projects only?
- Board meetings?
- Are you emotionally and intellectually ready to give up control?
What does succession look like?
- Need or desire to retain some involvement, control or profits?
- Transfer business interests in lump-sum over period of time?
- Transfer voting and/or nonvoting business interests?
- Retain some portion of business interest? If so, voting or nonvoting?
- Are all younger generations the recipients of transferred business interests?
- What if only some younger generation members work at the business?
- Transfer business interests in trust for younger generation and/or free of any trusts (outright ownership)?
- Involve philanthropy in your succession plan?
Use a "business first" or "family first" approach?
- Make decisions and take action that are first in the best interest of the business?
- Take primarily family considerations into account?
- Which approach is used in present operation of the business?
How and when to raise succession with younger generation family members?
- Family meeting?
- Meet with legal and tax advisors first before larger family meeting?
- Include business counselor/psychologist in initial family meetings?
- Include legal and tax advisors in initial family meetings?
What information is given to younger generation family members during succession discussion and process?
- Open the family business books and tax returns?
- Complete transparency?
- Confidentiality and/or noncompetition concerns?
Is there family tension now or might there be once the succession process begins?
- Differing skills and roles among the younger generational family members?
- More than one descendant line to be involved and/or own the family business?
- Animosity and/or mistrust or distrust among younger generation family members?
- Animosity and/or mistrust or distrust between you and younger generation family members?
The further out you begin the succession planning process, the more planning options. The lower the value of the business, the less gift exemption used, gift tax paid, or purchase price paid. If succession planning involves a sale of any portion of your business to a third party, it is even more important to involve your legal (corporate and estate planning counsel) and tax counsel as early as possible; some planning options are not as tax efficient once there is a binding obligation to sell.