As my late senior partner use to say with regularity. “Most business men spend more time getting their haircut in a year than they do on succession planning in their family business.”
According to a number of studies on the issue of succession in a family held business’s only 1in 3 survive intact and financially healthy with the passing of the original founder when passed down to the next generation. Of course the most successful history of passing family assets etc is in Europe either through royal bloodlines or through the use of “primogeniture” i.e. the oldest son gets the gold and his other siblings get some form of value but not the bulk of it. This can work as long as the oldest son is the most capable of the children to be handling the family assets. Of course that is not the situation in many cases.
So how is a family business passed down to the next generation in such a fashion that it can remain intact and be managed effectively by the most capable sibling. What leads to the next question when dealing with the children. “What is fair and what is equal?” because the two are not necessarily the same. Open and regular communication with your family becomes imperative to effectively design a workable estate plan.
Estate and succession planning is not a science. There are no set formulas. You may distribute your assets in any fashion you desire. The problem becomes one of taxation. Every plan has a cost attached to it. Once you have determined how you want the control and distribution of your assets done then you have to provide the necessary liquidity to pay the costs (typically capital gains tax liabilities triggered by deemed dispositions.
Properly planned life insurance is typically the most cost effective method of providing liquidity in these circumstances.
As Barry Kaye, a high profile insurance broker in the U.S. succinctly likes to describe life insurance:
“You buy! You die! It pays! Any questions?”