There are several ways to transfer family-owned businesses upon your death. Below, we provide a brief overview of a few of these options. Understanding these options will help you select the best option for you and your family.
1 – Gift it to an Heir
The first way to transfer family-owned businesses is to simply gift it to one or more heirs. Businesses can be gifted just like any other asset. Depending on the value of that business and the lifetime gift exemption, there may be negative tax implications of such a gift. Additionally, you will want to consider how recipients handle joint ownership in the business. Disputes among heirs can be messy and can impact business operations and success. Good pre-planning can help avoid some issues and create for a smoother transition.
2 – Form a Partnership with Heirs
Another way to transfer a family-owned business is to create a partnership with heirs ahead of time. Since your heirs would already retain some level of ownership, the transition to complete ownership would be much easier from a business operations perspective. You must still take steps to avoid probate and minimize taxes.
3 – Sell Outright
A third option is to sell the entire business to another party. Arrangements can be made in advance through a buy-sell agreement. Your estate and heirs can receive full market value of the business at the time of your death. There can be other triggers to the sale as well, such as disability or retirement. Buy-sell agreements are legal and binding documents, so it should be considered carefully and written in a manner that protects your interests and achieves your actual goals.
4 – Create a Living Trust
Another way to transfer family-owned businesses in Massachusetts is with a living trust. Ownership of the business is retained by the trust, with you designated as the trustee. In the event of your death, someone else (that you pre-determine) would take over the role of trustee.
Pros and Cons to The Ways to Transfer Family-Owned Businesses in Massachusetts
All of the above ways to transfer family-owned businesses in MA have different pros and cons. Factors that you should consider include:
- Ease of Transfer
- Desire of Heirs to Participate in the Family Business
- Tax Implications and Possible Exemptions
- Avoiding Probate
- Time Required for Transfer of Ownership
- Amount of Control in Altering Plans
- Business Operations and Potential Disruptions
The needs of every family-owned business will be unique. Work with a Massachusetts Estate Planning attorney to discuss your options and to create a plan that best fits your circumstances. Contact us today to schedule a consultation with our team.