Four Fatal Flaws in Family Business Estate Planning

Business leaders spend enormous amounts of time, energy, and hard dollars creating estate plans for their family businesses. But are they really creating foolproof estate plans – or are there huge potential holes in most of them?

Watch our blog this week as Wayne highlights four fatal flaws in what appears to be a technically sound estate plan and presents you with solutions to easily fix them.

We look forward to hearing your thoughts and comments.

Please click here to download the transcript.

  1. Thank you for this podcast. the comments following were also insightful.

    • You’re welcome, Lynn.

  2. If you are establishing (or upgrading/reviewing/revising) a “formal continuity program”, it only makes sense to consult your business team. If your company is involved with a surety, it makes common sense to keep that surety underwriter up to speed with the implementation of (or changes in) the continuity plan.
    The experience and expertise of the surety, along with the other business team (CPA, Banker, Attorney, etc.) member’s input, can be extremely helpful in this matter.
    “Plans fail when there is no consultation. But there is accomplishment through many advisers.”

    • Thanks, John.

  3. Love this week’s podcast.

    • Kerry I do too and am right in the middle of doing this now.

      • Well done, John!

    • Sweet! Thanks, Kerry!

  4. An alternative is to have a buy sell agreement in place that allows the children involved in the business the right to buy the common stock from the estate in exchange for preferred stock or secured debt and have the specific instructions in the estate documents that the agreement be honored in the settlement. This would 1) provide financial security to the spouse, 2) provide an assets that can be given by the survivor to the other children without breaking up operational control, 3) shift all of the future appreciation to the involved children tax-free and 4) provide flexibility for subsequent financing of the business growth. This sort of “estate freeze” has some tax pitfalls if done during the stockholder’s lifetime, but is a viable option to consider at a stockholder’s death.

    • After listening to pitches from a variety of high priced experts covering very convoluted and complex plans, I took a simple path. Both of my children are in the business and were gifted stock for a number of years. I stopped gifting them stock, and I stopped taking a salary and have been selling stock back to the company. Every three years I sign a note with the company in exchange for stock , the company pays me every two weeks interest and principle, I pay capital gains tax and tax on the interest. I’m 67 and this should carry me to about 80 at which time I will use 401k, and a variety of other investments. I don’t need or want a big pile of money. This approach provides me with a comfortable lifestyle while allowing my son’s to reap the rewards of their efforts in continuing to grow the business. Oh by the way the company is a C Corp which makes this approach a little cleaner.

      • Thanks, RJ.

      • This works, but you should also consider a process for issues of your children either dying before you or getting divorced, to avoid having the stock pass outside of family control.

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