How to Keep Business in Family – and Keep Kids Happy

September
01

Written by: Jon McGraw

The short answer may be the inclusion of life insurance, but there’s more to the story…

Bob started the wholesale parts distribution business from his basement after leaving a national distributor in the early ‘80s. The company has come a long way since then; persevering through recessions, supply shortages, financing, hiring — and today life is good! Well almost.

There continued to an ongoing challenge that had Bob lying awake pondering the future of his business. “How do I retire?  What happens when I die, how do I equalize what my kids receive?” This was the point when Bob was introduced to Buttonwood through his attorney.

We spent quality time getting to know Bob and his wife, Jill. As with all our “Family CFO” clients, developing the right solutions began with a conversation about their aspirations, goals, concerns, family situation, and details surrounding their financial and business life.

They expressed three key objectives:

  1. Live comfortably in retirement, travel, support their philanthropic causes and spend lots of time with their grandchildren.
  2. Keep the business in the family, with their son ultimately running the business
  3. When they pass, they want all three children to feel they have been treated as equitably as possible

Their son had worked in the business since middle school.Today his role is the company’s top engineer, designing complex customer solutions. In the past, family conversations had included their sons desire to someday run the company.Their two daughters had their own careers and had no interest in the business. What could they leave for the girls if goal was to someday have their son own and operate the business?

Buttonwood began by assembling a team of experts: In this case, their tax advisor, business and estate attorneys, an outside business valuation specialist, and a banker.  With the team focused on what was most important to Bob and Jill, several ideas soon percolated to the surface and the following steps were implemented:

  • Valuing the business.  Essential to getting to an equitable solution when the business is sold or bequeathed to their son. And for managing Bob and Jill’s overall estate tax planning.
  • Restructuring the ownership and control of the company. Allowing their son to begin running the business without yet having majority ownership, or the risk of interference from his sisters.
  • Purchasing life insurance for Bob. The death benefit proceeds will provide equitable amounts of cash to their daughters in exchange for their ownership interests.
  • Purchasing key employee insurance for their son. Provides time to re-assess the best options for the business and family should their son pass unexpectedly before the transition plan is complete.
  • Building in flexibility as to Bob’s retirement timeline. Offers a smooth transition to allow Bob to remain in control of the business, reassure customers and bankers of the strategy all while their son transitions to his new role of President.

Bob is sleeping better!  If you’d like to learn more about what Buttonwood’s Family CFO services could mean to you, please contact Frank Drinkwine to set a strategy appointment at 816-285-9000 or by clicking HERE.