Dozens of black-owned companies were represented during the 7th Salute to Excellence in Business Luncheon last Friday and readers can enjoy coverage throughout this edition of the St. Louis American.
Many of these entrepreneurs plan to leave a legacy for their children, by passing on the family business. And yet 39 percent of all family businesses transferred to the second generation fail, according to a Harvard Business School study.
If you are thinking of leaving your business to your children, you might want to consider the following questions.
Are your children willing and able to run the business? Now is a good time to talk with them about their ambitions and expectations for the future. If your children’s passions lie elsewhere – or if you worry that the business might create contention among them – it might make more sense to sell.
On the other hand, if your children are interested in taking your place, start early to educate them about the ins and outs of running the company. The more they know, the better chance they will have to build on what you’ve created.
Do you have a succession strategy? If you decide to keep the business in the family, prepare now for the transition. Simply gifting the business to your heirs could have huge tax implications, because any gift above $12,000 per child per year may be subject to gift taxes.
Some business owners form a partnership with their children, not realizing that the partnership automatically dissolves with the death of either partner. As a result, the business could be stuck in probate for years, opening your affairs to the public and potentially draining the company of valuable resources.
Have you considered forming a trust? A better strategy might be to transfer the business to a living trust and name your child as the successor trustee. During your lifetime, you remain the trustee and beneficiary of the trust, and you retain exclusive control over the business.