. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know.
As with any major life change, trusted advisors should guide families through these complexities by providing clients the necessary counsel and coaching, while working hard to preserve family dynamics. More than covering the logistics, it’s important to also be prepared for the differences in opinions within the family regarding how the business should be run. An advisor should be a neutral mediator, posing challenging but essential questions to clarify the fundamentals.
In some cases, the successor may be obvious – perhaps a son or daughter who has been working in the business for years. In other cases, the family may need to look outside for a successor. In either case, an advisor can help encourage clients to identify suitable candidates and develop a plan for training and mentoring them.
Understanding the valuation of the business is also beneficial when preparing clients for unforeseen circumstances. While many families often only consider business transitions during conflicts or after a family member’s death, initiating the conversation early will prepare for unforeseen circumstances like disability, death, or divorce, and prevent significant financial losses due to the “fire sale” of assets.
Estate freezes provide the added benefit of offsetting a pre-determined tax bill with life insurance. This ensures that if the owner of the business passes away, their life insurance proceeds will cover the tax bill owing, so that assets, or even the business in some circumstances, are not required to be sold to pay the tax bill.