Running a successful business can be a point of personal pride. It can also provide the owner with a consistent stream of income. Many business owners aspire to have their loved ones assume control of their organizations after they die. They like the idea of their children or other family members following in their footsteps.
Not everyone has family members who share their talents and interests. After three generations of accountants in the family, a professional’s children might all pursue different career paths. In such cases, they may not be able to leave the family business to a specific beneficiary to run.
Can they instead arrange for the sale of the business for the benefit of their family members?
Estate planning puts testators in control
If a business owner leaves an organization directly to their beneficiaries, the people who inherit the company decide what happens with the organization. They could sell the company if they do not want to operate it, or they could try to learn about the company and step into a leadership role.
If a testator believes that liquidating the company or selling it to a competitor makes more sense than having family members try to assume control of the company, they can plan accordingly. It is common practice for testators to leave instructions in their wills for their personal representatives to liquidate specific assets.
Instructions may also include details regarding exactly how to distribute the proceeds from the transaction among specific beneficiaries. They could even extend the right of first refusal to their beneficiaries, thereby allowing them the opportunity to purchase the business for a fair market value before their personal representative lists it for sale on the open market.
In some cases, uncertainty regarding the market when an owner passes or a desire to ensure an optimal return on the transaction of selling the business. In such cases, testators may want to consider establishing a business trust.
They can appoint a competent person to manage the business and monitor the market until the time is right to sell the company. The trustee can then arrange for the sale of the business or the liquidation of its resources to help optimize the sale proceeds that beneficiaries receive. Either arrangement can potentially provide the close loved ones of the business owner with substantial financial support.
Those who believe that selling a business may be a key component of establishing a meaningful legacy may need support as they evaluate their estate planning options, and that’s okay. The use of the right tools and language can help ensure that a business owner’s hard work has a positive impact on their selected beneficiaries.