Family business owners have fear that what if the family divides and eventually their business gets divided.
First-generation business owners are very successful owners and always have a concern about the way business owners commit to business; they don’t believe that their family or children are committed in the same manner.
What happens to their estate if their fear and concern come true? How would you like your assets to be distributed? How would you want your family to use those assets? How would they pay for the transfer? When should they sell it? Or should they even sell it?
Estate planning is the process of answering the above questions. It is also an ongoing process to identify the scenario(s) which would reduce the value of Estate examples; debt, or lawsuits, or taxes.
Writing a “Will” is the first thought when someone thinks about this topic. Some even believe it’s the only tool; but this a misconception. ” A Will ” may be contested,it may take a long time for it to be executed, and it may be misinterpreted, it should work, but it’s important to always have fail safes.
Another structure which is commonly spoken about is Trust(s), which also can be used for Estate Planning in our country. Finding a trusted Advisor is key to this structure, as the family would be assigning all the rights of the assets to the Trust Company for management of these assets is done based on the letter of wishes written by the creator of the Trust (also known as settler).
One of the biggest concerns we have identified in Estate Planning is the lack of Liquidity in the Estate. Most estates are Asset Rich but Liquid Poor. This causes many estates to go through “A Fire Sale” to generate that liquidity, which may be to pay off debts or taxes or even create equal distribution of wealth between beneficiaries.
One Example due to limited space, Property to be distributed between 2 children. Does the estate sell the property and give them both equal cash? Or one child buys it from the other, if yes, where does the child get the money from? These situations can cause estate to lose value.
Many estates are using structured financial products as a method to create liquidity to ensure that estates are not forced into “fire sale” situations and to reduce the potential conflict between beneficiaries. If you have 1, 2, 3 or 100 beneficiaries, estate planning is a process which needs to be done and monitored.
Are you prepared? And have you asked the right questions for your family?
