FORTUNE Small Business:

Passing a family business on to your kids

Passing the company you've built on to the next generation involves legal and financial decisions - and philosophical ones.

Subscribe to Top Stories
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)

personal_finance_expense.03.jpg
Ask FSB
Get small-business intelligence from the experts. Here's a chance for YOU to ask your pressing small-business questions, and FSB editors will help you get answers from the appropriate experts.
Your name:
* Your e-mail address:
* Your city:
* Your state:
* Your daytime phone #:
* Your questions:

(FORTUNE Small Business) -- Dear FSB: What's the best way to pass my construction business on to my son?

- John, Montclair, N.J.

Dear John: First, sit down with your financial advisor and develop a comprehensive business succession or "exit" plan.

"An exit plan analyzes your objectives and resources, both personal and business, including the financial, tax and legal aspects of business transfer," says Daniel Prisciotta, a CPA and certified financial planner with Rochelle Park, N.J.-based Equity Strategies Group, an affiliate of Lincoln Financial Advisors (LNC, Fortune 500). Prisciotta has a specialty in wealth transfer solutions.

"This is probably the biggest financial decision of your life, representing many years of hard work," Prisciotta says. "You only get one chance to transfer your legacy properly."

To do so, you must first decide whether you want to give the business away or sell it to your son. The best answer for you depends on your own financial independence, according to Tom Vieira, a financial planner with the private wealth services group in the Cherry Hill, N.J., office of Lincoln Financial Advisors.

If you want to give the business to your son, "you can consider a gifting strategy using your annual gift tax exemptions - $24,000 a year for a married couple - and your lifetime gift tax exemptions, which are $2 million for a married couple," Vieira says. Have your planner check if you're entitled to certain valuation discounts.

To sell the company to your son, Vieira recommends an intra-family sale. "This technique typically involves selling the stock or assets of your company in exchange for an installment note," he says. You'd need to determine the terms of the note, including the number of years, the interest rate and security if payments aren't made.

Covering all the technical bases of an exit plan is the easy part, says Prisciotta. The process leading to your decision to transfer your company to your son can be complicated.

"Make sure the path you choose is best for you, your son and your business," he says. "I can only assume that your son has the necessary experience and the entrepreneurial drive you have, that you've spent a great deal of time training him in all aspects of the business, and that he's passionate about ownership." To top of page

Will your children eventually run your business? Chime in on our discussion forum.
Photo Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Sponsors

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.