August 22 - 25, 2018

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Business Succession Planning Insights: Tales from the Trenches

by Editor 9. May 2018 09:48

By:  Terrance K. Resnick and Leon B. Resnick: Resnick Associates

(Part 2 of 6)

Inadvertently Disinheriting Your Children from Business Ownership

Yes, it happens – more often than business owners realize. Worse yet, is this trap snares many business owners that have actually implemented succession planning! There are many reasons how a business owner can disinherit his or her own child. Think it can’t happen to you? Think again.

A common example is a business that has two or more owners that happen to have their children actively working in the business with the intent of continuing the business well into the future. The problem arises when a succession plan doesn’t get updated. 

Many years ago siblings, Larry, Harry and Mary started a single lumberyard, as equal owners. The single lumberyard grew to five and the business was thriving. The siblings had the good foresight of establishing a funded buy-sell agreement that would make certain if one of the owners departed the business for any reason that there would be mechanisms in place for the owner’s business interest to be bought and the remaining owners would own the company 50/50. There were many components of the plan; however, the overriding objective was for the company to buy back the stock of an owner that departed the company for any reason. Sounds fairly straightforward, right? It was straightforward when the plan was implemented; however, as time went by Larry, Harry and Mary each had a son come into the business with the intention that their own sons would acquire their own parent’s shares. Again, a very common intention for many business owners. So what’s the problem? Harry unexpectedly passed away and the dream of having his son own his shares passed away as well. Remember, each of the owners’ business interest was structured to be bought by the company at their passing.  In this particular situation, Harry’s shares at his passing were purchased by the company. Harry’s son’s business ownership future – over and done.

 Learn more about this topic at the "Survive and Thrive - Assuring the Long-Term Success of Your Company" session at the IWF 2018 Education Conference.

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