If you’re like most business owners, your ownership interest in your company is far and away one of the most valuable things you own. When you have multiple children or other beneficiaries, you may choose to leave them each a roughly equal portion of your estate, which can be somewhat of a challenge to do so in a fair manner – even if you offset the value of your business across the board with other high-value assets such as your house. What are your options?
Selling the business
Perhaps the most obvious solution to this dilemma is to arrange for your executor to sell your ownership interest in the business upon your death and distribute the proceeds among your beneficiaries. This is a simple and effective solution if keeping the business in the family isn’t that important to you, or if none of your children have expressed interest in running the business after you are gone.
Buy-out agreements
Let’s say one of your children would like to keep the business going, while the others would rather receive cash. Instead of forcing a sale of your business, you could set up terms in your estate plan which grant an equal ownership interest to each of your children, with the right to run the business to the managing child that wants it. Couple this with the managing child having the option of slowly buying out their siblings’ interests in the business through a schedule of set payments.
The advantage of this buy-out arrangement is that each child receives equal value from their share of the business. The managing child eventually gets to become the sole owner, and they don’t have to come up with the full sum required to buy out their siblings all at once. Generally, an imperfect option. Particularly in a business with a volatile profit history.
Family limited partnerships
If more than one of your children expresses interest in continuing your business, you might consider a family limited partnership. This is a legal tool you can use to transition your ownership interest into a limited partnership run by two or more of your close family members upon your death.
You’ve worked hard to build your business from the ground up. Now that you’re ready to craft your estate plan, it’s good to know all of your options so that you can set a plan in action to allow your loved ones to continue to profit from your sacrifices after you are gone.