Is Your Family Business Protected in the Event of Your Passing?
By: Steven M. Williams and Whitney Patience O'Reilly
In the United States, there are about 24 million family businesses, and they account for about 90% of the business tax returns and employ 60% of the American workforce (80 million people). According to the Small Business Administration, small companies (those with 500 or fewer employees) create approximately three-quarters of the new jobs and generate 64% of the annual gross domestic product (GDP) in the United States. Of these businesses, about 280,000 are property management companies, which make up 13% of the GDP. Many of these are family-owned and operated.
However, only about 30% of family businesses survive to the second generation, and less than 15% make it to the third generation and beyond.
Why?
Many business owners don’t have succession plans. Even more do not have one that covers the unexpected – and sadly, that could mean the business dies with them. Business succession planning is crucial to the survival of your family business when you retire or die unexpectedly.
What could happen to your family business if you do not have a succession plan?
- The family business could be lost to estate and inheritance taxes.
- The family business could be lost because there is no formalized arrangement to transfer ownership of interest to your heirs, and disputes might arise between children who are and are not involved in the family business.
- The family business could be lost because there is no plan for financing it.
- The family business could be lost because no one can or is willing to take over.
For property management companies, not having a business succession plan can be especially worrisome because of the complexity of the real estate ownership, control issues, and the management of properties and tenants in numerous regions.
Understandably, it is hard to give up control and think about your own mortality, but it is essential to protect your family business for the future. Owners of family businesses need to take a step back, think about the future, and put together a carefully crafted business succession plan so that their companies can continue into future generations.
Remember, there are tremendous estate and gift tax savings from a comprehensive family business succession plan, but they are time-sensitive.
About the Authors:
Steven Williams provides a full range of legal services to landlords, property managers, and other housing providers. He assists clients in avoiding and resolving legal problems and positioning themselves to maximize the success of their businesses. Steve can be reached at 717.234.5530 or swilliams@cohenseglias.com.
Whitney Patience O’Reilly provides business counseling for clients across a wide array of industries. She advises on corporate matters, business succession planning, estate planning, and real estate matters. Whitney can be reached at 267.238.4760 or woreilly@cohenseglias.com.
