Case Study: Family vs. Family Business

Preserving the Value of a Family Business

Over twenty-five years ago, a family business was at a crossroads – who should own it; how would they preserve and manage it; and how would it pass on to the next generations? The founder had one child working in the business. His other children had pursued career opportunities outside of the business. His desire was to benefit all of his children equally in passing his assets, including the business, to them. He also wanted to take advantage of certain tax benefits associated with transferring assets from his estate to his family. With guidance from his team of professionals at Kanaly, a tax attorney, and a CPA, the business owner was able to structure the transactions necessary to achieve his goals.

The World Is Reset – No Worries?

He proceeded with gifting equal ownership of the business to trusts for the benefit of his children. The trusts provided protection and tax efficiency for the children and allowed them to participate in the ownership and future growth of the business. With the transfer/gift complete, what changed? In effect, the owners of the business were now children, not the founder. What kind of issues would arise? The new shareholders have different demands. Some want higher dividends. Others want to grow the company. How can all parties be satisfied?

The Opportunity

Since several family members did not want to be involved in the business, we coordinated a transaction where those who wanted to remain in the business were able to purchase the interests of those not wanting to remain involved. They were each represented by separate legal counsel and valuations were determined.

The Future

Family harmony and maximum tax savings were achieved as a result of these transactions. Each family member is now able to achieve his or her own goals with their own assets independent from the rest of the family. Individually, they continue to look to Kanaly to provide guidance and support.

Profile

Name: Paul (62) and Susan (61)

Occupation: Business Owner

Net Worth: $25 million

Children: Three grown children, one who works in the business