A business owner has three children, two of whom are involved in the business and one who is not. The owner does not believe the two interested children are ready to have a management role in the business, but wishes to provide the two interested children with the ability to become full partners in the business in the future. The owner is also concerned with making sure his children are all treated equally under his estate.
Small and midsize business owners often confront the intersections between succession planning and estate planning. We recommend that the owner recapitalize the stock of the business with voting and non-voting shares, and that the owner then begin a tax-advantaged plan of gifting the non-voting shares to the all of the children, with the option for the interested children to buy into the voting shares after a certain amount of time. The owner would also acquire life insurance and/or utilize beneficiary designations to equalize the value being passed to the uninterested child. A plan of this type will allow the children who are interested in the business to assume ownership and control in a structured way, while treating the child who is not interested in the business fairly and equally.