What You Need To Know If You Own a Family Business
Family-owned businesses are a core pillar of OMS and our local community. They are also the backbone of the U.S. economy. Today, there are over 32 million family-owned businesses, making up 60% of the U.S. workforce. These businesses play a significant role, contributing substantially to job creation, economic growth, and community stability. Although they generate $5.9 trillion in revenue annually, when it comes to succession planning, a family business falls under different rules as compared to a non-family-owned business.
Two partners (unrelated parties) are free to structure their estate and business planning however they want, but a family-owned business is subject to Chapter 14 of the Internal Revenue Code. These special valuation rules aim to reflect the economic value of a family business for estate and gift tax purposes. Chapter 14 approaches the American family business from a skeptical perspective, assuming that a family business will try to minimize tax liabilities by undervaluing their company to avoid taxes. These special provisions require a particular structure and enforce equality among family members. One major reason family businesses fail is poor succession planning and a lack of understanding Chapter 14.
Proper planning involves a series of strategic and legal steps to ensure a smooth transition, continuity, and protection of the business for future generations. Here are key points to consider:
- Estate Planning: Tools such as wills, trusts, buy-sell agreements, and life insurance play a critical role in the transfer of your business assets.
- Tax Considerations: The transfer of a business can have significant tax implications, including estate taxes.
- Succession Planning: Decide future owners and management.
By carefully planning and addressing these key areas, you can help ensure the successful transition and longevity of your family business across generations. If you’d like to know more about planning and protecting your family business, OMS recommends you contact Acentria Life Insurance expert, Scott Hutchison for a free consultation. Scott has helped many of our clients by providing a team approach, giving owners access to experienced professionals who understand the legal, tax, and financial implications of family businesses.
