Four Ways That Family Business Owners Can Transfer Their Wealth

Many family business owners reach a point in their when they start thinking about not only their own retirements, but also their families' financial security. Whether you're at that point now or know you'll get there eventually, here are four ways to transfer wealth to the next generation.

1. Custodial Accounts

Some family business owners put money into custodial accounts for their children when they're young. These are financial accounts managed by one person (the custodian) for the benefit of another (the beneficiary), typically a minor. Generally, the beneficiary gains access to the account at age 18 or 21, depending on state law.

Custodial accounts can be a simple way to accumulate funds for children, other family members or even nonrelatives. However, once beneficiaries have access to the funds, they may spend those dollars any way they choose. So, if they're not financially responsible, the money can disappear quickly. For this reason, custodial accounts generally shouldn't be allowed to get too large.

2. Trusts

Trusts are suitable for family wealth transfers because they can take many forms, enabling you to tailor one to your needs and situation. To be effective for gifting, trusts are usually irrevocable, meaning you can't amend the trust after you create it. However, trusts don't have to be entirely unchangeable. Under limited circumstances, you may provide flexibility through powers of appointment and other techniques.

You may give money or other property to a trust for the benefit of a spouse, children, grandchildren or multiple generations. Creating one can help you segregate family-derived assets from your children's assets and keep creditors and divorced spouses from accessing the trust's principal. You can even structure a trust to hold C or S corporation stock.

3. Family Limited Partnerships

Family limited partnerships (FLPs) are a natural fit for family business owners looking to transfer wealth. And using one can prevent heirs from squandering funds, because they don't control the assets held in the partnership.

Essentially, you transfer any of a variety of assets to an FLP. These may include business interests, real estate, investments, intellectual property and collectibles. Then you name yourself the general controlling partner and your heirs the limited partners.

Because they're limited partners, your heirs have no control over the FLP's management or assets, and partnership interests aren't transferable without your consent. Moreover, the FLP's assets are protected from personal liability claims against the limited partners.

As general controlling partner, you can give as much as 99% of the FLP's interests to heirs within the partnership. Keep in mind, however, that general partners have unlimited liability for the partnership's debts and obligations. Be sure to obtain professional guidance when establishing an FLP.

4. Charitable Donations

Many family business owners split their wealth between heirs and charitable donations. You can accomplish this in various ways, including:

If you decide to go this route, communicate your intentions to children and other heirs as early as possible. You could even involve them in the decision-making, which can be a rewarding experience for the entire family.

Give Yourself the Opportunity

If you've been running your family business for years and accumulated substantial wealth, give yourself some credit. However, also give yourself the opportunity to transfer that wealth according to your wishes. Professional advisors, including your CPA and attorney, can be invaluable partners in this effort.

We Help You Get to Your Next Level™

Get in touch today and find out how we can help you meet your objectives.

Call Us