Your hard work over the years has helped you build your business, and now you’re ready for a positive transition to the next generation. But a family business is not handed down as easily as other heirlooms. Without careful planning, you may not have control over the transfer of your business, and as a result, it could struggle in future years. A family business transition strategy known as a buy-sell agreement ― a contract that clearly states how the business assets should be transferred ― can give you control and help protect the future of your business.
Your business probably represents the largest and most important asset you own. Farm Bureau can help you develop a family business transition strategy today, while you and your business are healthy, to help future generations succeed.
A buy-sell agreement for family businesses allows you to establish which family members will take over the business, while treating all non-active heirs fairly. By establishing a properly funded buy-sell agreement ― funded by life insurance ― you can ensure that family members who are active in the business have the funds needed to purchase the business interests from other heirs when necessary. Equalizing the estate distribution with a family business buy-sell agreement can have many advantages:
Ensures the business will remain in the family
Preserves good will among children, since heirs will be treated fairly
Since the strategy can make the active family members’ futures more secure, the likelihood of a more profitable business can mean more dependable retirement income for you
Allows active family member(s) to operate the business without interference from inactive or non-business heirs
When funded by life insurance, annual premium payments for the life insurance policy that funds the buy-sell agreement can be less than a bank loan or installment payments to other heirs
Life insurance proceeds are generally received income tax-free
Investments and improvements to the business will belong to the business heir in the future, eliminating the need to “buy them a second time”
Non-active heirs’ inheritance will not be dependent on the active heirs’ success with the business
Language in a family business buy-sell agreement should be coordinated with estate documents, so you may want to combine your estate preservation and business strategy efforts when developing your business transition strategy. Doing so may also minimize estate taxes. Find a local Farm Bureau agent who can help ensure the success of your business for future generations.