This may be as good as it gets. When it comes to transferring wealth to the next generation, family business owners may never again see an opportunity this favorable. That may seem like a bold statement, but with ballooning federal debt and rising social and political tensions, it is difficult to imagine that the $23 million lifetime gift exemption (for a couple) will survive much longer. Growing political and economic pressure to find tax revenue will almost certainly close that window. My colleague, Kaylee Simerson, has published an excellent article exploring these technical topics. Technical experts like me get excited about such things. We talk of GRATs, CRUTs, IDGTs, and don’t even get me started on valuation discounts! Get me in a room with a CPA and estate attorney, and we’ll come up with the most elegant solution to tax-efficient wealth transfer. But that is only half of the puzzle.
Unfortunately, many family business owners overlook the “soft” side of the wealth planning. That is, planning to ensure that healthy family relationships are preserved.
David Lansky, of the Family Business Consulting Group calls this “family wealth continuity” meaning, success at preserving both a family’s material assets and good family relationships. In his outstanding article on this topic, he identifies several important questions that families should address for successful family wealth continuity.
He raises questions like: What do you want for your family? What do your kids want for their lives? Are they interested in and capable of playing the roles you envision for them in the business? Where does philanthropy fit into your plans and values?
Warren Buffett has famously said “the perfect inheritance is enough money so that children feel they can do anything, but not so much that they could do nothing.” How much is “enough” for your kids?
The answers to important questions like these can have a far bigger impact on a family’s quality of life than technical details about wealth preservation. If these topics are overlooked, the results can be disastrous.
In my role as a business valuation expert, I have seen most sides of these topics. We get involved up front when business owners are transferring interests to their kids, because those business interests need to be valued. And we get involved as expert witnesses in shareholder disputes, too frequently among siblings whose parents unintentionally set them up for a battle.
The classic case is the business owners who gift equal shares of the business to all their kids, without naming any as CEO. We all love our kids equally, after all, right? They can just run it together, so the thinking goes. But, how many times have you seen leaders successfully share the top spot? There is a reason that “Co-CEO” is a rare title.
One recent example I have seen involves two brothers who have been litigating over their parents’ wealth for most of their adult lives. Now in their late seventies, and suffering health issues, the brothers are headed to court yet again to fight over their parents’ wealth.
With thoughtful attention to both the technical and family side of wealth, successful families can establish a solid framework to continue the family’s success for future generations. Now is a great time to take action for your family’s future.
We would enjoy talking with you about how our valuation work can play a role in achieving your family wealth planning goals. Contact any one of our estate planning valuation experts in Grand Rapids, Chicago, Traverse City, and Lansing:
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