It has been said that only 34% of first-generation family businesses can expect to survive to the second generation, and just 15% can hope to survive to the third generation.1 Unfortunately, typical estate planning often ignores the component of family dynamics and therefore facilitates the high failure rates. The findings are that 60% of failures are attributable to how successor family members interact and 25% of the failure are attributable to heirs not being prepared to manage (combined total of 85%) – while only 10% of the failures are attributable to transfer taxation.2

Lets Face It. You are the founder of your successful business. You are unique. You have a unique role which usually cannot be replaced. Another person cannot usually step into your role and still have the business succeed long-term because it is you who have the unique inspiration, talent and drive that makes your business successful. When you are ready to move on to other things and let others step up to the plate, then your business enterprise has to successfully transition from your unique role-based sole power (based on your individual talents, drive and leadership) over to your successors' rule-based shared power (a way to make decisions together and work cooperatively) if you and they want your business to continue the gift of your legacy to your family.

Does your current family estate plan integrate a structured way to facilitate a successful shifting of power to your heirs? Or were these succession needs ignored? Will your current legal and tax planning actually lead to divisions in the family and loss of family harmony? Does your current planning have anything in place to help prevent communication breakdowns and facilitate resolution of differences (which certainly will happen) in order to preserve the legacy you gave your family?

Thinking Outside the Box: The Integrated Estate and Business Succession Plan. After over roughly 40 years of studying various planning failures and successes for family businesses, studying industry management and succession research, and working with business psychologists and psychiatrists, we've developed a successful planning approach that better integrates family dynamics and business management strategies into the tax and estate planning for the business succession process.

The research indicates that the keys to businesses which succeed after the founder steps down or passes on are a Management Board which is structured for shared power, and use of one or more facilitators or consultants. Richard Goldwater, M.D., developed the Roles and Rules concept, the necessary shift from the founder's role-based sole power to the successors' rule-based shared power, as described in the book For Love & Money by John W. Ambrecht, Esq., Howard Berens, M.D., and Richard Goldwater, M.D. with Tom Gorman. As described in that book, the family members need to have a structure in place for them to work together as business partners (i.e., the Management Board), with established rules applicable to all family members yet sensitive to family issues. The rules enable family members who work in the family business to be become more valuable participants in (and therein valuable assets of) the business.

An integrated business succession plan will then include:

  • Continuity of business management by implementation of a Management Board.
  • Development of the succeeding generation to step into their management role.
  • Enhancement of internal family communication, particularly in the business context.
  • Qualification rules for family members who work in the business, and a means of dealing with family-employee issues without detriment to family relationships.
  • Tax planning techniques to minimize the multiple layers of taxation (estate, gift, generation skipping transfer, capital gains, business and personal income, and property taxes).
  • A plan for meeting future liquidity needs (e.g., if significant estate taxes are anticipated).
  • Use of entities or trusts (foreign or domestic) to protect assets and reduce liability and creditor exposure.

Your Legacy. Your successful business is your legacy. We want to help you help your family continue that legacy for many generations.

1 Beckhard, R., & Dwyer, W., Jr., A Managing Continuity in the Family Owned Business, Organizational Dynamics (1983); Ward, I., Keeping the Family Business Healthy (Jossey Bass, San Francisco, 1987); Kets de Vries, M.F., The Dynamics of Family Controlled Firms: the good News & the Bad News, Organizational Dynamics, (1993, pp. 59 71); Arnoff, C., Understanding the Statistics - Only 30%, Family Enterprises (1999).

2 Morris, Michael H., Williams, Roy O., Allen, Jeffrey A. and Avila, Ramon, A., Correlates of Success in Family Business Transitions, Journal of Business Venturing (1997, Vol. 12, pp. 385 401).