If the business formation is a sole proprietorship and the owner utilizes Schedule C for tax purposes, simply listing the business on the Schedule A of their Trust can be sufficient. If the business is valuable, then a discussion regarding business entity formation is important, and assigning the business to the owner’s trust may be appropriate.
Planning techniques are likely to have transfer tax considerations that must be evaluated by an attorney and a CPA. Changes in tax laws, as well as the business owner’s estate value, may require ongoing reevaluation and potential adjustments to the plan by outside advisors.
As the “baby boom” ages, understanding a variety of approaches to planning for business exits and succession planning will grow in importance. Approaching these strategies as a process and integrating a team of legal, tax, accounting, insurance, and financial professionals may help tax and legal professionals address the multitude of situations their clients may face.
When a business owner wants to pass his or her business on to children, they should be certain the children want to continue to operate the business before gifting it to them.
How children relate must be considered as well. If children a business owner’s children cannot work amicably, a business may not be the proper forum to attempt to force them to work together. Family behaviors and personalities can be an important part of this decision that organizational psychologists and other management professionals specialize in consulting with people regarding business family dynamics and succession planning.
Whether the next generation wants to be involved in the business and whether they will treat the business as a “sandbox” to play in or a “golden goose” to be nurtured and valued must be considered before the decision to pass on a business is made.