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Legal tools that can help keep a family business in the family

Legal tools can help the longevity of a family business. Two options to consider when aiming to keep a family business in the family include trusts and shareholder or buy-sell agreements.

A trust: Reduce tax obligations and financial burden for future generations

A trust can allow a business to reduce estate tax obligations of the principals. Current law sets the estate tax exemption amount at $11.4 million, but this amount is not permanent. Without a new law, this exemption will sunset in 2025. As such, it may be wise to gift certain business assets into a trust to fully take advantage of tax savings.  

The transfer would also remove future appreciation from the giftor's estate. This can lead to additional estate tax savings. For example, a business that is transferred into a trust when it is worth $10 million that grows to a value of $15 million before the owner's death will result in $5 million appreciation that is not subject to gift and estate tax obligations.

Shareholder or Buy-Sell agreement: Keep the business in the family

In addition to a trust, a shareholder agreement or buy-sell can also offer some protection from potential third party owners. This type of agreement can restrict the sale of a family business only to those who are part of the family. This is achieved by provisions prohibiting transfer without permission. The agreement can also give a right of first refusal when another owner is looking to sell.

These are just a few options that can help ensure your family business succeeds for your family long in the future. An attorney experienced in business succession planning can review your business plan and discuss the legal tools that can help you meet these goals.

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