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Succession planning for a business  seems to be a major issue at the moment.  I am working with five that are either in the process or have it as an issue to address in the foreseeable future.

All five businesses have at least one adult children working in the business, but not all of their children.  So there is the potential for problems.

One business, the parent originally wanted to give the business to the child working in the business.  I am/have been discouraging this, because the siblings who are not involved in the can perceive their inheritance as lessened by this action.

Not to mention that this would trigger gift taxes.

I am encouraging the owner to sell the business to the child.  The buyer should get a valuation that is true and acceptable to the siblings and have them sign off on the valuation. This way there should not be any lawsuits for taking advantage of mom or dad with the purchase price.

Once a valuation is determined they will need to have an attorney draw up the purchase agreement, as they do the sibling valuation sign-off letter.

The working children do not have the resources to buy the business and it will be likely that the parent will self-finance a buyout.  This way the business can be paying for itself, helping the new owners.

I have also suggested that the purchasing child(ren) get a life insurance policy on the parent just to make sure that the purchase is completed by the passing of the parent.  Again, with an eye towards keeping the siblings happy and at bay.

Granted this is one series of options that I have proposed, they are based on the specifics of the situation.  This would not necessarily work in a couple of other situations that I am working with.  It also is different if more than one child is working in the business.  I have one business with one child in production and the other in an administrative function.  In another I have one penciled in to run the operation, but the two siblings are also active within the business.

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