The baby boomer generation is full of entrepreneurs. Many have chosen a path of independence and cultivated successful businesses. As the generation matures many baby boomers are making decisions about the future of their companies. Deciding the best way to pass on a family business can be complicated. There are multiple choices to pick from and each one has its own repercussions. The following list does not include every possible option but highlights some popular choices.
1. Pass the business on as a gift
Some business owners prefer to give their company to heirs in the form of a gift. This option is complicated by state gift tax. Under federal law business owners can give up to $5.45 million before gift tax kicks in. Unfortunately that number is the total amount of assets passed on to your heirs, which can include your house, stocks, and bonds. If the business is shared between you and your spouse then a married couple can give up to $10.9 million in total before taxes. This option is great for some small business owners but many choose another way to save money.
2. Leave business assets in trusts
Trusts are a great option for passing on a family business. You can transfer assets into a trust and also receive monthly income payments for a set amount of time. Once the owner has passed on the assets in the trust are transferred to beneficiaries. One of the major benefits of passing on a company through a trust is that it protects the successor's stake if they get divorced or sued.
3. Sell discounted shares
In this method you can sell discounted shares to your heirs at a cheap and legal interest rate. It is basically borrowing your beneficiary money to buy interest in the company. If your business makes up more than 35 percent of your adjusted gross estate then your kids can pay tax payments over 14 years - the first five years being interest only payments. This can save you and your beneficiaries a lot of money.
Again these are just some of the most popular methods of passing on the family business to family. Each method has its own benefits and consequences. Due to the complications involved it is advised that you seek the help of an attorney to create a business transition plan for your company.