Working for one’s family may seem like an easy career to maintain; however, even small family-owned business can face the same complex matters that major corporations do. The longevity of a business is continually monitored, and if a business in New Jersey or elsewhere seeks to change hands to ensure the business continues well into the future, succession planning is essential. While specific documents can be drafted to address this business matter, for some companies, creating a trust might be the best option when it comes to succession planning and ensuring the business is passed on to capable hands.
For a family business, succession planning helps avoid the probate process when it comes to passing a family business onto an heir. Not only does it designate to whom the business will pass to, it could happen during one’s lifetime. In other words, if one seeks to retire and pass the business to another family member, colleague or an external hire, succession planning can designate the steps necessary.
One way to make a succession planning easier for a family business, especially one that has been in the family for generations, is to place it in a trust. This not only helps avoid the probate process, it ensures that the correct heir inherits the business while also evading taxes that could impose on them.
Best practices when using a trust
There are a few best practices to consider when using a trust in this situation. First, one needs to establish their needs. This allows the trust to be structured to meet the needs of the succession plan in place for the business. Next, one should take their time when creating a trust for a family business. It can be complex, and it is imperative to consider all the details.
Third, the power given to the trustees should be clearly defined. If multiple individuals are serving as a trustee, the duties and responsibilities of each trustee should be defined and included in the trust agreement. Next, one should choose beneficiaries carefully. Much care should be given when deciding who will handle the business assets appropriately. Finally, one should not do this process by him or herself. It is complex and a task that is often far too much to manage for a single person.
Whether one is starting a new family business or is having it pass on to the next generation after decades of operation, it is important to understand how to initiate or continue succession planning. This can be a complex business law matter, making it imperative that one consider the necessary steps to take. This not only protects a family business but also ensures that it properly and efficiently passes into the hands of the right party.