Business Continuity is the Prize of Succession (Part I)

Baylor
Legacies Newsletter
by Ernesto J. Poza

Three brothers run a retail chain catering to a well-defined market niche. The business is people intensive, and customer service is very important. Competition is fierce in their industry. As a rule, profit margins are low. New products and product/service combinations do offer opportunities for healthier profit margins. The brothers have grown the business four-fold in their twenty years of leadership and are now preparing for the transition to a third generation of owner-managers.

The next generation is better educated and has worked outside the family business in well-regarded Fortune 500 companies. Motivation to professionalize the firm, update its managerial practices and ramp-up the growth curve is high. The third generation is ready to use organizational and human resource systems to support increased teamwork, delegation with accountability as well as a more strategic approach to the business’ market niche.

The family is now larger. Each of the brothers has three children, expanding the potential pool of successors to nine. To prune the owning family tree, the brothers entered into a buy-sell agreement funded by life insurance. It specifically states that next generation family members need to be full-time employee/managers to qualify for ownership. This is, briefly, the business and family context in which succession is presently taking place in many family-owned businesses. More…

Family Limited Partnerships

Family Limited Partnerships UMass

Related Matters Newsletter
Summer 1995

by Ronald P. Weiss, Esq.
Bulkley, Richardson and Gelinas
Springfield, Massachusetts

You pay a fortune in taxes. You pay income taxes on what you earn and on what your investments earn. You pay taxes on what your employees earn. You even pay taxes on inflation. And the income tax rules are so complex, so you have to spend days and incur substantial fees just to pay your income taxes. Then, when you die, the government plans on taking a substantial portion of the wealth you have left after all the income taxes. If you are in the highest income and estate tax brackets, this means that for every dollar you earn that is taxed at ordinary income tax rates, your children will inherit only 27 cents.

The laws of our country are designed to make it difficult for you to transmit a substantial estate relatively intact to your children. In response, estate planners have created a number of techniques to help you leave as much as you can to the next generation. Unfortunately, the most common techniques, outright gifts and placing assets into irrevocable trusts, will most likely put assets outside of your control. This may make you uncomfortable if income producing assets, especially your family business, are involved. These methods may also give rise to estate and gift taxes based on the full value of what has been transferred. More…