With the aging demographic, many family business owners have either considered passing their business down to the next generation, or have already created a plan to efficiently transfer their business and assets at a minimized tax cost. However, the development of the plan can sometimes only focus on the tax issues and involve only the owner(s) while not providing a comprehensive plan that includes the entire family.

Owners typically do not want to discuss the advent of death, let alone face the prospect of discussing it with their family. Owners may only create their estate and succession plan after their accountant provides them with an estimated tax bill on death with a bunch of zeros attached to it.

Due to a lack of transparency, family members may develop different views on how the business and the estate should be handled after a death; it only takes one disgruntled beneficiary (second spouse, in-laws, non-involved family members) to start a long drawn out battle. This can result in costly litigation, family breakdowns and the owner’s wishes being lost in the shuffle.

An effective tool in conveying the owner’s intent for their business and estate is to have a Professionally Mediated Family Business Meeting. Not your typical dinner table discussion, but it gives one-an-one time to clearly state what the future plans are and the impact on all parties.

To have an effective meeting, first create the agenda. Note what you want to discuss, such as the will, beneficiaries, value allocated, who is going to run the business and when control will be given, and the expected outcome of the meeting. Direct the discussion towards educating all parties on the tax/financial and personal/emotional impacts, and then provide an open forum for discussion. Decide who should participate in the meeting (spouses, children, in-laws, financial advisors, accountants, lawyers, etc). Pick a neutral location to provide a fair environment for all parties (hotel, accountants/lawyers office, etc.)

Once your points have been presented and technical aspects are explained by your accountant/lawyer, allow for a caucus to let the parties discuss the plan with each other at the meeting. After the discussions, note who agrees or disagrees with the plan and make any amendments, leaving the final decision with the owner.

Document the minutes of the meeting; attach any relevant documents (e.g. will), and have everyone sign the “family business meeting” document. The document will not have much weight from a legal point of view, but it does demonstrate that everyone has been informed of the plan. Distribute the document to all invitees so everyone is informed of the plan. The meeting could be done again annually, or if events occur that can significantly change the original plans.

The end result is that the owner has clearly conveyed their wishes to the family, received feedback, and possibly re-evaluated the plan, which can help mitigate legal costs on death, save taxes, and help ensure the succession of the business.

For further advice or assistance with these or any other financial issues, please contact a Millards representative at (519) 759-3511.