Estate & Tax Planning

Steve Clausen, a founding member and head of the Estate Planning and Probate Section of Clausen & Centrich, PLLC, published the following article in PKWY Magazine in the October 2016 issue:



            An inevitable issue facing every family business is succession – who will replace the current owners and officers once they retire or die?  The family business owner has four basic choices to dispose of such business: (1) sell, (2) lifetime gifts, (3) transfer at death, or (4) liquidate.  Proper succession planning allows the business owner to determine which option works best for him, his family and his business.

What is a Family Business?

            A family business includes (a) two or more unrelated people who have formed a closely held business, (b) a husband and wife, (c) a parent and child or children, (d) siblings who are in business together, or (e) some other combination of the foregoing.

What Is Succession Planning?

            Succession planning involves planning for the preservation and transfer of control of an individual’s business in a manner that carries out his or her objectives. 

Probability of Succession Failure

            Statistics in one study show that only 30% of family businesses survive for more than one generation (i.e., from parent to child), only 15% of family businesses last for two generations (i.e., from grandparent to grandchild), and only 1% of family businesses survive for three or more generations.

Why Do So Many Family Businesses Fail in the Second and Third Generations?

            The leading causes for why so many family businesses fail are: Unresolved family discord such as bad management, and lack of training; lack of, or inadequate, business succession and personal planning; high taxes (death and income taxes); and unforeseen problems.

The problems associated with high taxes, bad management, and family discord can be controlled, and even eliminated, by a thorough succession plan.

Dealing with Emotions

            The owner may have a major reason to not address succession planning – the desire to avoid making two difficult decisions: “When is it time to leave the business?” and “Who should take my place?”  Succession issues also have the potential to wreak havoc, both in the business and in the family.

Four Important Facts the Family Business Owner Should Consider in Succession Planning

Succession planning is important for every family business. Failure to develop a formal succession plan will impair the family’s finances and personal relationships. Without carefully coordinated succession and personal planning much of the family’s wealth may go to pay taxes. Often times, impartial, outside advisors are necessary to help the business owner effectively solve the succession problems.

Key Questions

            To implement a business succession plan, the owner needs to resolve four distinct questions: Should the business be sold or kept under family control? If the business is to be sold, who are the potential buyers and when should it be sold? If the business is kept in the family, who should have ownership and ultimate control? If the business is kept in the family, who should be in charge of day-to-day operations?

Formula for Successful Succession Planning

What can a business owner do to successfully transfer business? Develop a clear retirement career plan for the business owner and the owner’s spouse.  Develop a realistic and shared written vision for the future of the business to guide the business when the business owner is no longer actively involved and in charge.  Select and train the successor.  Develop a process for transferring authority and power in the business.  Develop a wealth transfer plan that specifies how family assets and ownership of the business will be protected and distributed.  Design the business succession plan including management structures, family council, and board of directors.  Design a family participation plan that specifies understandings and rules for future family involvement in the business. 


            Remember that succession planning is a process, not an event, and it is more than simple estate or retirement planning – it’s part of a comprehensive wealth transfer plan.  It is the blueprint that guides the owner and family in successfully dealing with perpetuating the family business.


Contact us to arrange a consultation and learn more about Clausen & Centrich's unique approach to meeting the legal needs of your growing business.

President Obama's new tax proposal has a number of changes that could drastically impact your estate plan or business. First, it would treat bequests to non-charitable beneficiaries as gain realization events. Currently, there is a step up in basis with no gain recognition.

The outline of the proposal includes:

  • Basis step up, but only because gain is recognized currently
    • This proposal is less favorable than simply denying a basis step up because it accelerates gain recognition
  • Exemption for first $200,000 of capital gain for married couples ($100,000 for individuals)
  • Exemption applies only to gains, not to value of assets transferred, so assets with a higher value could be bequeathed tax free
  • Exemption automatically portable between spouses
  • For couples, no tax would be due until the death of the second spouse
  • No tax due on inherited small inherited family-owned and operated businesses unless and until the business is sold
    • Any closely-held business would have the option of paying the tax on gains over 15 years
  • Bequests or gifts of tangible personal property other than expensive art and similar collectibles would be tax-exempt

Retirement Planning Changes

The new proposal would prohibit contributions to and accrual of additional benefits to qualified plans and IRAs when balances are sufficient to provide an annual income of $210,000 in retirement

  • Current maximum allowable balance would be about $3.4 million
  • Employers with more than 10 employees but no retirement plan would be required to enroll all workers in an IRA (auto-IRA)
    • Tax credit of up to $3,000 for employers with up to 100 employees that offer an auto-IRA

In addition, the administration has recently withdrawn its proposal to tax 529 savings plans.

While it seems unlikely that these proposals will pass Congress, any such changes to the tax code could greatly impact your individual or business. Attorneys at Clausen & Centrich will keep you informed about changes that could impact your estate planning, business or succession planning.

      We occasionally receive inquiries asking about our estate planning services and then trying to compare our quoted price to that of a self-help provider, such as LegalZoom. But does LegalZoom really provide you with the protection you need for your family?

      According to LegalZoom’s website, you can “Save time and money on common legal matters! Created by top attorneys, LegalZoom helps you make reliable legal documents from your home or office. Simply answer a few questions online and your documents will be created within 48 hours. We even review your answers and guarantee your satisfaction.”