Transferring a business to your children is likely one of your primary estate planning concerns if you’re a business owner. Family businesses can be more than a passion project, they can also be used to fuel family income for decades to come.
We understand that it can be complicated to know which steps to take, which is why we’ve made this introductory guide on the common ways to transfer a business to your kids. We welcome you to contact our Pinellas County estate planning lawyers for a free consultation.
Read Related: Florida Business Succession Planning Checklist
Options for Transferring Your Business to Your Children in Florida:
Put The Business in a Will
One of the simplest ways to leave your business to your children is through your will. This option is suitable if you don’t want to lose control or ownership of the business while you’re alive.
To put your business in your will, you will need to be clear with your wording. You cannot leave room for misinterpretation, so it is wise to hire a last will and testament lawyer. For example, “I leave the interests of my business to my children, with an equal ownership share” would be appropriate.
However, there are some notable negatives to transferring your business to your children via a will. For example: you won’t be able to guide them through the ownership role as you would if you transferred it before your death. You also can’t guarantee what condition or age your children will be in once you pass away. They may no longer be competent or motivated to run the company.
Gift the Business to Your Children
Another option to transfer a business to your children is gifting. Gifting is as simple as it sounds – there is no sale or trade. You simply give up full or part ownership, to them.
The primary benefit is that any future appreciation in business value will be exempt from your estate – so your loved ones won’t have to endure federal estate taxes when you pass away (though this should only concern estates with a value of over $12 million).
It is also a great option for people looking for a simple share of ownership, while still alive (and not only after death, via a will or trust).
Sell Your Business to Your Children
If you don’t want to relinquish the ownership of your business without receiving some financial gain, then you can consider selling your business to your children. This may sound simple, but what happens if your children can’t afford to buy its fair market value?
Here are some options:
- Promissory Note: Sell the interest in the business in exchange for a promissory note, so your child agrees to pay back in the future. The child can use the income from the business to pay off the interest and principal.
- Self-Canceling Installment Note: This type of promissory note requires that any further obligations to you are canceled if you pass away before it’s fully paid off. However, this comes with potential tax concerns.
- Sale in Return of Private Annuity: This option is similar to a self-canceling note but with different annual payments.
- Grantor Retained Annuity Trust: The trustee makes annual payments from the businesses’ profits to you for a term, before then becoming the new owner.
- Partial Sale and Lease Back: If your business owns real estate, you can sell the business but retain ownership of select assets. You could then decide to rent these back to your children as the new business owners. This can allow you to fund your retirement. Be sure to carefully draft the transfer documents while informing your kids, as family disputes are common when there are unclear agreements.
Transfer the Business to a Trust
Transferring business interests to a trust is a way for the business to benefit your children, while also maintaining some degree of control.
Trusts allow you to appoint a Trustee, who manages the trust in the best interest of the beneficiaries (your children). You can set conditions for the management or it, allowing you to maintain a vision even after you pass away.
One of the best benefits is the personal protection your children will get from creditors or ex-spouses. The business will be at less risk if the child gets sued, has debts, or becomes divorced.
You can also appoint a child as a co-trustee if you want them to make decisions. But the other trustee (a non-child) should be in charge of distributions, for creditor protection.
There are various trust types. Please contact our Pinellas County trust lawyers to determine which is best for you and your family. You will also need to consult an estate planning lawyer to set up or amend a trust document, so please know we provide free consultations.
Read Related: A Guide to Different Types of Trusts in Estate Planning
Add a Business Partner
Another simple option for transferring a business to your children is by adding them as a business partner. They will then be able to learn about the operations and responsibilities of the business, so they’re primed to take over when you retire or pass away.
You can determine how the succession plan for your business works in your will and business operating agreement.
Why Plan a Business Transfer in Advance?
Transferring a business to your children should be planned before retirement or the latter years of one’s life.
Accidents and illness can happen. By taking steps in advance, you’ll make life easier in the future for your children, yourself and your business.
If you have a high-value business, it is also critical to take steps in advance to avoid the business becoming part of the probate estate which would see it face taxes and a slow transfer of ownership.
Finally, planning in advance can allow you to prepare your kids for ownership. If you spring a surprise on them in the future, they might not be capable, interested or prepared. By having everyone informed in advance, the family is more likely to work together, be free of disputes and allow for a smooth transition.
This is a process, not a sudden event.
Read Related: How to Protect Your Small Business in Estate Planning
Considerations for Multiple Children
Estate planning for business ownership is complex, especially when you have multiple children.
For example, what happens if one child wants to be an employee of the company, but the other is preoccupied by their career? In this example, you could leave and allow one child to become an owner but allow the other child to receive benefits from the business via a trust.
There are a plethora of options available to you thanks to estate planning, which can be discussed further by speaking to an experienced estate planning lawyer.
Hire an Estate Planning Attorney for Transferring a Business in Pinellas County, FL
If you want to transfer a business to your children in Pinellas County, Florida, then please contact our Pinellas County estate planning lawyers for a free assessment. We regularly help businesses of different sizes to plan for the future, through wills, trusts and other well-drafted documents.
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Battaglia, Ross, Dicus & McQuaid, P.A. is U.S. News and World Reports Tier 1 law firm in Florida, specializing in Estate Planning & Probate since 1958. With award-winning experienced estate planning attorneys, they can help you create a will or trust.
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