Planning is Process

One key theme to emerge from the panel is that planning is a process, not an event. The earlier the family starts dealing with issues like ownership, succession, governance, education of the younger generations and communication of family values, the better. Families need to meet regularly and make sure that they all understand the roles and responsibilities that are already in place for them and what to expect in the future. Families also need to work with their advisors to get structures in place to organize their operations and minimize taxes and liability.  

Changes in The Past Decade

The panel acknowledged that estate planning has become more collaborative across generations. The patriarchs/matriarchs are communicating with the younger generations and getting their input.

At the same time, the structures that are used to set up the business have become more complex, which may overwhelm certain family members. For example, families need to decide whether to set up the business as a limited liability company (LLC), partnership or perhaps a C corporation and how and when to use trusts as part of the equation. More businesses are now held in trusts or other holding structures than ever before. So, family members need to be educated on fiduciary responsibilities. 

Effect of New Tax Law

With the higher exemptions in place thanks to the the Act, fewer families may be subject to estate tax, so there’s been an increased focus on income tax planning. The Act doubled the individual estate, gift and generation-skipping transfer tax exemptions to $11.18 million. Also, the new law will have a big impact on businesses, including family businesses, by reducing the corporate income tax rate from a top rate of 35 percent to a flat 21 percent, while also eliminating the corporate alternative minimum tax. The Act also effectively decreases the tax rate on certain income received though pass-through businesses, such as partnerships, LLCs, and S corporations. Businesses with foreign holdings may be subject to increased taxation, and controlled foreign corporations will require special attention. 

The Bottom Line

There are so many moving parts when it comes to planning for and managing a successful family business. Things can get complex fast, and families must pay special attention if they want to succeed. It’s important that they get advice that’s coordinated among a multi-disciplinary team, including attorneys, accountants, investment advisors and family business consultants.  The idea of “parallel planning” can really work. Families should focus on the business, philanthropy, relationships among its members and communication at the same time as the estate plan.

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