Q: I have built my own business over the years, and it has become quite successful. It’s a family business and I would like to keep it that way. Who should I choose as my trustee or personal representative? What do I do with the business if I pass? Can I secure that business profits still go to my family and children?
A: It is very important to have an estate plan to dictate what you would like to do with your assets, whether you have a business or not. If you have specific wishes with regards to your business, you should have those memorialized in writing. Your wishes should be written in whatever type of business agreement you have in place. That business agreement will then dictate what can and cannot happen with your business at your death. Your wishes can and should also be expressed in your family trust.
The person you name as trustee should be someone who will be able to handle the administration of your trust, including your business after your death. It should be someone who is responsible, able to handle money and business matters, as well as someone who can handle any conflicts, should they arise. This person may be your child, family member, friend, or even someone in the business.
Succession planning for your family business is particularly difficult for several reasons. When you aim to keep your business leadership within your family, you must choose the next leader from a relatively small pool of candidates, not all of whom may be interested in leading your businesses. Furthermore, sometimes those interested in leading your business may not be qualified. Even when there are family members available to fill the leadership positions, their performance can be impeded by competition among siblings or other relatives. Sometimes the best scenario is to fill management positions with experienced non-family members. But you or your family may be reluctant to do so.
Many family businesses transfer the business to a family member without measuring their ability to run the business. Thus, a founder might successfully transfer a business to the second generation, only to realize too late that the second generation will not be able to keep the business afloat. So your first step in keeping your business in the family is to talk with your family and see who is interested and who is not.
With clear family communication, you can create a succession plan that will be the best outcome for your family and your business.