Plan Ahead: Your Family Is Depending On You To Make the Right Decisions

Posted on November 1, 1994 by Mark Becker, LCT Editor

Succession planning involves critical decision-making when keeping a business for your heirs.

Business succession planning is a concern for all family-owned businesses. The limousine business is no different. Over half of the operators in business today have done very little in the way of creating a smooth transition between generations in the event of a retirement, disabling accident, or death.

The most significant portion of a business owner’s net worth are the assets that are a part of that business and the income-producing capability.

It is vitally important to closely evaluate options available in the event that a company owner does not want to or cannot maintain physical control over their operation.

The retirement or death of an owner can greatly impact a family-held business. A well thought-out plan for the eventual change in ownership within a family business cannot be taken lightly.

There are many areas of concern that need attention when trying to keep a business in the family. For the purpose of this article, only the more commonly utilized planning strategies will be examined.


The current owner, in the event of a death, can facilitate a smooth transition for the next generation of ownership by executing a business continuity trust that specifically provides for business successor ownership and management. This gives- the new owner the power, at the time of death, to retain the business as a working investment of the person who passed away.

The current owner must be absolutely sure that there is adequate funds left in the estate to pay any debts, taxes, or other expenses. If adequate funds are not left in the estate, a forced sale of the business could ensue to raise the necessary funds to pay off the outstanding debt.

Create an equalization trust that is funded by non-business assets. This is a trust that will provide assets to family members who will not take an active role in the ongoing family business.

A life insurance program should also be maintained because, when combined with the other non-business assets, will be sufficient income for the owner’s spouse and other family members. Life insurance will also provide resources to pay off creditors in the event of an untimely death. Compensation is provided for the business as well until the next generation of management has had ample time to gain the necessary knowledge and expertise to effectively take over the operation.


Deferred compensation techniques allow significant tax-deductible deposits to accrue on a tax deferred basis until the owner retires. The owner is not taxed on income invested in these funds until they request access to this money. When a certain age is reached, tax breaks are realized. This retirement plan income will replace earned compensation.

Incentives for key personnel to remain active in the business play a key role in an owner’s planned retirement. Individually designed benefits (non-qualified deferred compensation to be paid to that person on a specific date), and office status are important when attempting to entice key personnel to stay with a company.

Many times stock appreciation rights are offered which will compensate an employee based on the performance of a company.

Owners will offer interest free loans as yet another incentive. If the operation is a corporation, the owner could elect to have the corporate profits taxed directly to the shareholder. This enables the retired inactive owner to receive dividends from the company without exposing him or her to corporate and personal tax brackets. The owner does not have to be employed to justify this income.

The above mentioned techniques are just a few of the more commonly used approaches designed to help a business owner keep their business in the family There are other more complex approaches. Think through every option.

A well thought out succession plan will not only alleviate complex estate problems for your heirs but will accomplish your objective — a smooth transition phase when passing the business torch on to the next generation of family members.

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