Attorneys that specialize in wealth transfer planning can help make the transition a smooth one by seeing to it that the right people take over the operations.
“There are a lot of fancy titles for what we do, but a wealth transfer planner is actually nothing more than a wealth plumber,” says Attorney Bruce Gordon, a founding partner of the Tampa Office of Shumaker, Loop & Kendrick, LLP and Co-Chair of its Trust and Estates Department. “We fix the leaks and make the money flow in the right direction without any backups or breakdowns often caused by taxes, creditors and family disputes.”
Smart Business talked to Gordon about the importance of having a strong business succession plan in place before retirement.
Why is a succession plan so important?
A good planner follows the cash flow at a family owned and operated business and watches where the money goes within the family. Let’s say the founder sells the business and now the family has cash. The founder’s son was involved in the business and suddenly there is a grandson. We hope that future generations inherit loads of the good DNA and the spark to take the money and the opportunity on to the next level, but this is not always the case. That money is either redeployed, parked or lost, and good planning can make all the difference.
What happens when a business founder is ready to retire?
That’s the biggest issue. I need to find some common ground upon which the client’s family can land, both for tax and non-tax issues. They have to make some tough decisions, such as who will lead the family business into the next generation or what kind of formula will let everyone get involved without holding up the natural progression of the business.
How does the family decide who will take over?
The typical guy (or gal more and more these days) who started his own business is a hard-charging, Type A personality; a control freak, you might even call him a micro-manager, but he does not see this as a problem nor does he care what anyone else thinks. He knows how to win.
Planning for the next generation is tricky and depends on how much time there is between the first and last born. The first born is generally a lot like his dad because he comes along while the family is still struggling financially or in the early stages of growth. He also usually gets more of dad’s attention. The last born, typically, is a bit softer because everything has been given to him, he gets less attention, has more competition within the family and things are just more comfortable. Often this child is happier, but less competitive. This is a huge generalization, but has some truth in most families.
So now the founder is looking at a range of possibilities and it is often a hard decision to make. It’s obviously much easier if there is only one heir. If there are two girls and one boy, tradition says the boy is the heir apparent, no matter where in succession he is born, but this trend is changing these days as well.
Is family the biggest issue?
It’s always the big one. We need to know about and special situations with children or parents and if the client has a stable marriage or is headed for a late-in-life divorce with a new wife in the wings. If you have a wealthy client in his 60s that is going to marry a younger woman, the kids get scared because mom isn’t in control anymore. Suddenly the new wife has the marital status, at least on paper, and stands to inherit a lot of the property. A prenuptial agreement could then become a big deal and a huge part of the succession plan. We often need to pull marital trusts out of our estate planning toolbox as well with the hope of satisfying both the surviving spouse and the children.
When is the best time to create a succession plan?
Start early; no later than age 50 and finalize the plan between 65 and 75 years of age. If not, you might lose the planning window. A lot of it depends on getting it done before there is a debilitating illness or age gets in the way. If a client nears 80 and beyond it is likely that he has waited too long. Plan like death could happen tomorrow.
Bruce Gordon is a partner resident in the Tampa Office of Shumaker, Loop & Kendrick LLP. He can be reached at (813) 229-7600 or firstname.lastname@example.org.