Successful strategies for business succession

It has been estimated that only about onethird of family businesses survive to the second generation and only 10-20% pass to a third generation for two reasons: (1) failure to groom successor management and (2) absence of tax planning. In many cases, the family business flourished for years because of the hard work, management skills, specialized knowledge, personal contacts, and, in many cases, the diplomacy and charm of its founder. When those elements suddenly vanish without planning, the business may have a short shelf life.

The federal estate tax includes an onerous rate structure that challenges the preservation of family businesses. The unlimited marital deduction may lull the owner into a false sense of security. Although the owner's estate may escape tax if his spouse survives, the tax is merely deferred until the spouse dies, when it falls upon the children.