Keeping it in the Family

“Post-mortem succession planning is the most difficult, because the voice of the deceased matriarch or patriarch can’t be heard and no multi-generational, collaborative process can occur,” says Bill Busch, a partner with Minneapolis-based law firm Faegre & Benson. “Any planning for succession in a family business must balance the hopes and aspirations of the senior generation with those of the junior generation.”

“A lot of people think they have plenty of time,” says Nancy Kiskis, a shareholder working in the tax and estate planning practice area for Minneapolis law firm Moss & Barnett. “They’re busy running the business and running their personal lives, and they just let it get away from them. I’ve seen lots of situations where Mom or Dad die suddenly, and it’s just left to the kids. That’s the process that has the least likelihood of success.”

Family (Business) Planning

So if you haven’t made a succession plan, what should it include? It can be as elaborate as you want it to be, but it must start with some simple communication between the business-owner parent and his or her kids.

“Mom and Dad don’t necessarily have to transfer ownership, just get everyone to the table,” Kiskis says. “Just as with any other family decision, if everyone participates when the parents are still there, the kids will often defer to the parents’ wishes.”

Howard Rubin, managing partner of Minneapolis law firm Parsinen, Kaplan, Rosberg & Gotlieb, takes clients through a step-by-step process focused on the various aspects of succession. He breaks the process into five primary parts:

{1} Setting your exit objectives. What do you hope to accomplish by keeping the business in the family?

{2} Determining a price or monetary value of the business. If the next generation decides to sell instead of carry on, what should they expect from potential buyers?

{3} Preserving, protecting, and promoting the value of the business. Who are the key managers, employees, and clients who must be maintained in order for the business to stay on the right track?

{4} Contingency planning. What if one or more of those key people goes away?

{5} Wealth preservation and estate planning. What’s the best way to pass on the value of the business with a minimum of tax problems?

“Get a handle on the state of the business,” Rubin says. “Ask yourself, ‘Do I have an appropriate management team in place?’ You want to maintain a revenue stream and make sure your customers are being taken care of. There are lost opportunities in preserving the value if there’s no planning. You can accrue an estate tax liability, and if you    don’t have the cash liquidity to pay the tax bill, you could face foreclosure.”