Family Businesses and Succession Planning: 3 Steps for Success

[Narrator] Family businesses and succession planning, three steps for success.

Planning for the successful transition of any business from one owner to another requires careful planning. But when a business is family-owned, there is more at stake than just financial considerations. To preserve family harmony, a successful transition can rely on three important steps. First, establish goals that are specific to your business and family members. For example, do you have a timeframe in mind for when you may want to relinquish ownership? Do you want to continue playing an active role in the business for a period of time or transfer ownership all at once?

If your business has a history of providing opportunities in your community or supporting local charities, do you want that legacy to continue? Does success include taking care of employees who have been loyal and helped to grow the business? What about retaining family harmony during and after the transition? How important is it to you that all your children are treated equally, even those that don't wish to be involved in the business? Finally, do you want to set up your children for success in growing the business and putting their own stamp on it?

Once you've set your goals for your business and family, it's time to understand the unique challenges that the transition of a family business presents. For example, if all of your children want to be a part of the business, what roles will they have? What about any children who don't want to be actively involved? If you are counting on the sale of your business to help pay for your retirement, what if your children don't have sufficient funds to purchase your ownership interest? Or what if your key employees have issues with taking orders from younger, less experienced owners? How will you motivate these employees to stay with the business? And consider the tax impact: Depending on how ownership is transferred, there may be federal gift taxes, capital gains taxes, and ordinary income taxes to pay. If you plan for your business to be an inheritance, there may be federal estate taxes as well.

Once you understand your goals and your challenges, it's time to focus on solutions and establish a plan to achieve your goals. Let's say your goal is to treat all your children equally. In that case, consider giving life insurance of equal value to those not participating in the business. If your goal is to make it financially easier for your children to purchase the business from you, consider selling them a non-voting ownership interest first at a lower price. That will give them more time to learn the business and accumulate more personal funds to buy a voting interest later on. To retain or motivate non-family key employees, consider a business continuation bonus plan, funded with employer-owned cash value life insurance, which provides a financial incentive for them to stay with the business after a change of ownership.

And finally, there are numerous ways to mitigate the tax impact of transferring the family business to the next generation. Just be sure to develop a comprehensive plan well before you intend to transfer the business. If it's important to you to keep your business in the family and avoid family conflict, first, determine your goals. Then, consider the unique challenges you face. And finally, develop a plan to overcome these challenges and achieve your goals, and leave your business in the very best of hands. Talk to your financial professional and your team of legal and tax professionals about developing a family business succession plan, and how indexed universal life insurance may help you achieve your goals.

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Indexed universal life insurance is subject to health and financial underwriting. The death benefit is generally income-tax-free when passed on to beneficiaries.

This content is for general education purposes only. It is not intended to provide fiduciary, tax, or legal advice and cannot be used to avoid tax penalties; nor is it intended to market, promote, or recommend any tax plan or arrangement. Allianz Life Insurance Company of North America, its affiliates, and their employees and representatives do not give legal or tax advice. Customers are encouraged to consult with their own legal and tax advisors for advice, and financial professionals for specific guidance or product recommendations.

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Products are issued by Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.950.1962. www.allianzlife.com

AMK-548 (7/2024)

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