Estate Planning for the Family Business Owner Requires Special Knowledge By Kenneth P. Brier
state planning is never more challenging than when it’s for the owner of a family business. Such planning is fundamentally different from planning for other individuals, so the onesize-fits-all standard estate plan is virtually certain to fail the owner’s needs.
Why the Standard Plan Will Fail Worst is the unplanned estate. Everyone has an estate plan, whether you realize that are not. If not planned by you, the government has a standard plan for you. Only slightly better is a “standard” lawyer-draft estate plan. KENNETH P. BRIER Though it may be so-
phisticated in a generic sense, it may well fail to address the critical issues of business owners. For example, passing S corporation stock on to trusts of the kind commonly provided in the “standard” estate plan will blow the corporation’s S election. Finally, even a well-executed estate plan, sensitive to special business issues, can fail if it is out of date. Personal and financial circumstances often change. And applicable state and federal laws have been in a continual state of flux. Four Precepts for Planning for the Business Owner I boil the special attributes of estate planning for the business owner down to four precepts: one, think globally; two, face succession or face extinction; three,
deal with liquidity issues; and four, divide, discount and conquer. Thinking globally: There is never a clear dividing line between planning for the business owner and planning for the business. If a business owner does not like the currently available choices, he or she often has the ability to change the menu. For example, an owner, unlike a rank-andfile employee, can amend an existing retirement plan to obtain further options or terminate it and adopt a whole new plan. To avoid making a taxable gift, I have sometimes suggested that an owner transfer business opportunities to the children, rather than the whole business. The owner can set the children up in a new company, primed with contacts and know-how Continued on page 14 5