Author: Armen Grigorian, Managing Partner, Redmount Capital Partners LLC
The principal creators of wealth are family business owners. Family businesses contribute over 70 percent of global production. Estate planning plays a vital role in the perpetuation of a family business. Considering the rapid change in business dynamics, estate planning is essential these days.
The majority of family business owners don’t update their estate plans. Over 50 percent of family business owners don’t review their estate plans for over five years.
An estate plan becomes old or outdated after a few years. Adding to this, circumstances in families and relations among family members, business matters, net worth, etc., tend to change irregularly or over a period of time. This is when estate planning comes into the picture.
It doesn't matter how complex an estate plan is. It's better to get a customized estate plan as long as one's legally competent. It will also ensure the safe passage of family business from one generation to another without any dispute that may further damage the prospects of growth.
When kept up-to-date, estate planning is also useful in offloading a family business for a fair price. Understanding the business management philosophy is essential when preparing an estate plan, and more particularly when the business transition is taking place.
Several academic institutions are offering courses on estate planning. For instance, American Law Institute is offering an estate planning course CLE for those who represent family business owners. It provides rights from estate administration, updates on transfer planning, current income tax, trust advisors, trust protectors, dealing with intra-family rivalries in succession planning, etc.
Academics and legal experts find that many family business owners lack awareness about even charitable planning and charitable gifts. Over 50 percent of family business owners are not exploring the options involved in tax benefits.
Some family business owners do not take advantage of several options available to avoid estate tax, gift tax, and other taxes legally. This happens out of ignorance or negligence. Hence, it's wise to review and refine existing estate plans.
Many family business owners realize that they're richer than when their estate plan was drawn up. Family business owners, depending upon their state and federal laws, can have updated estate planning not only to enhance value but also to add protection.
Estate planning is essential for inheritance. It helps heirs retain control of assets and minimizes taxes imposed by the State and Federal governments.