Wednesday, December 14, 2011

Preserving the Family Business

Matthew C. Mullhofer Attorney, was contacted by a new client that wanted some information on how to safely plan their family business to ensure its survival from one generation to the next. Mr. Mullhofer, explained that statistically, family businesses have only a 20% chance of being successfully transferred from one generation to the next. Matthew C. Mullhofer Attorney, explained that the failure to properly plan is what causes businesses to fail when getting transferred from one generation to the next.

Mr. Mullhofer let the clients know that until the end of 2012 a couple will be able to transfer up to $10 million estate tax free to their family, but in the beginning of 2013 the amount may be reduced to $7 million. This means that approximately 98-99% of family businesses will not have to worry about death taxes, and a family business will not fail because of death taxes, so it is safe to say that properly planning is what a business needs in order for it to prosper from one generation to the next.

Matthew C. Mullhofer Attorne, gave them a list of a few basic questions that a business owner today must think about in order to properly deal with the major family asset. Some of the basic questions that Mr. Mullhofer suggested are:

¨ Who will be taking over the family business if owner wants it to continue to the next generation? Is it going to be a family member or some key employee?

¨ Do the owner’s children want to continue the family business or not? If children are involved are they all involved or just one or two? If so, how will the value of the business be shared after your death, if all of your children are to be treated equally?

¨ If the business owner is married, how will the surviving spouse be able to have sufficient cash flow for the balance of his or her life? Where will that cash flow come from? If your business does not pay dividends now, will it after your death to your spouse?

¨ Do you have assets that can be segregated from the business that can produce income without having to run the business if it is sold? For example, do you or the business own the real property where the business is located? If so, you should think about a long term lease for the survivor, if the new owner does not want to operate the business at the same location. This way the survivors lease interest has to be dealt with if the business has to be sold.

¨ Is there a key contract or license agreement that can be placed into a separate limited partnership or limited liability company for asset protection purposes from outside creditors?

¨ Do you want to provide for your children only or for your grandchildren also? If so, do you want your children to have an incoming with invasion of principal during their lifetime of the family assets in order to assure that there will be no estate tax owed on your childrens death? This is call dynasty or generation skipping planning.

¨ If there is going to be a trustee for the surviving spouse from your portion of the family wealth that you own, who will be the trustee? Will it be the surviving spouse, your child or some third part? Can any of them run the family business or manage the family wealth if the business is sold?

These questions are just a few out of many that Matthew C. Mullhofer Attorney, asks when developing a plan to preserve the family business. Devoting time to plan is a major component in preserving all the hard work that has gone into the business.

Make an appointment with Matthew C. Mullhofer at (714) 827-9955 today so he can help you preserve your family business.

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