Young woman using debit card on computer

Estate Planning for the Family of a Business Owner

This brochure has been prepared to help the family business owner tackle two very important issues:
  • Who will take care of the business in the absence of the owner due to unexpected illness or incapacity (like a disabling car wreck or stroke)?
  • Who will take care of the family business, own it and manage it after the original owner's death?
Unless the family business owner is willing to address the legal problems and financial issues that these two questions present, then there is no use in "pressuring" him or her to make plans for the future of the business. Without a financial game plan for succession of the business after the matriarch or patriarch (mom and dad) are ill or die, the lawyer and accountants will have to cope with the business mess later. The approach will obviously cost the surviving family members and heirs a great deal of money. Failure to plan ahead will also most likely doom the business and be a hardship on the employees.

The Plan

Therefore, let's assume that you have a cooperative business owner who wants to address these issues by tackling the following:

  • Who will be the #2 person in charge of the business? Note: Are they a family member or not?
  • Who currently owns stock in the family business? Note: Just "mom and dad" or other family members?
  • Have the other family members been working in the business and received shares through purchase or annual stock gifts by mom and dad?
  • Are there family members who have received shares of the family business who does not work in the business?
  • How is management structured, officers, board of directors organized, and succession planned? How will non-employee family members be treated versus the family who actually work in the business? (Disability insurance, health insurance, retirement account funding).
  • How is the estate planned (will or trust) for inheritance of mom or dad's stock?
  • How are the financial needs of the business owner being addressed with the family accountant or CPA? Note: What about health or disability insurance and retirement account funding?
  • Should life insurance be purchased to provide liquidity to pay business debt or buy-out of shares owned by the deceased? These are called the "Key-Man" life insurance policies.
  • In case of only temporary illness or incapacity of the business owner, who has authority to run the business, sign checks, hire and fire, etc. until mom or dad is well enough to return to work?  This should be dealt with in the corporate by-laws or a Power-of-Attorney document.
  • How will the business debt and creditors be handled in case of emergency? Does the family know about the loans and line of credit obligations the business has incurred while mom and dad have been in sole control?


In summary, statistics reflect that over 55% of business owners die without a will and that only 15% of family owned businesses make it to the second generation. If you want to make sure that your business will succeed you, it is necessary to establish an estate plan to facilitate that process.

The Next Generation

If there are children who are interested in running the business and want to continue operations for the 2nd and perhaps 3rd generation, there are specific issues to address with the family's attorney and accountant.

  • How will the transfer of stock be handled between the surviving spouse, children involved in the business and the children who are heirs but not involved in the business?
  • Has an "Emergency Plan" been prepared with a well-structured diagram of which officers take-over which functions at the business when the mom or dad can no longer do so.
  • The patriarch's business plan for succession of management should be widely known and understood by the family and the employees so that any emergency will cause the least disruption to the on-going business management.
  • What if the 2nd in command, the patriarch's successor, is not a family member, but the family shareholders want to keep the business? A plan for purchase of some stock and clear responsibilities for the new manager must be spelled out in writing. Retirement, insurance and salary, and/or annual bonuses should all be discussed to avoid misunderstandings later.


Retirement... it does sound good, but are you ready financially? Concern regarding the instability of Social Security continues to grow and we are looking for new ways to secure our future. Individual Retirement Accounts (IRA) through Vision Bank are one of the ways that you can plan your future retirement. There are several types of accounts that you can choose from; Traditional IRA, a ROTH IRA, or a SEP IRA (Simplified Employee Pension Plan). In deciding which IRA would be the right one for you, it would be wise to consult your tax professional.

For instance, there could be a tax advantages to your business for you to open a SEP plan, but there are certain restrictions that your tax professional could help analyze.

A Traditional IRA has been a long time favorite for many people. You can begin an IRA with as little as $200 at Vision Bank and make regular deposits into it up to the maximum contribution limit. (Beginning in 2008 you can contribute $5000 per year and up to $6000 if you are age 50 or over). All earnings on your traditional IRA remain tax deferred until you make withdrawals from the account. Deductibility of your contribution is based on your modified adjusted gross income and income tax filing status. Once again your tax professional can help you determine your actual deduction.

The ROTH IRA has become very popular. We have seen a growth in the amount of Roth IRA's being opened. The Roth does have certain income limits and it is a nondeductible account but, it features tax free withdrawals for certain distribution reasons after a five-year holding period. That is the best part of the Roth IRA. When you are ready to take a withdrawal, you pay no taxes on any of the earnings that your money has generated (providing it is a qualified distribution). People expect to be in a higher tax bracket when they retire may benefit more from a Roth, than from a traditional IRA.

You can decide which is a greater priority for you: minimizing your taxes now through a deduction (traditional IRA) or minimizing your taxes in the future with tax free earnings.

Simply see any of our Personal Bankers at Vision Bank. They can explain the IRA accounts to you in more detail and help you complete the forms necessary to establish your IRA.

Practical Considerations

This business owner's first task is to determine what will happen to his or her business upon death. The alternatives are: (1) sell or merge, (2) liquidate, or (3) continue for the benefit of the survivors. While no asset plan will apply to every situation, there are some common problem areas that business owners and their professional advisors should consider in establishing a plan for clear continuity.

  • Provision for successor management of the company.
  • Provision for liquidity to pay taxes and estate settlement costs.
  • Income provisions for a surviving spouse and dependent children.
  • Consideration of the value of the business and its impact on estate taxes.
Management succession is the single most important task that must be accomplished in order to insure the smooth and successful transition. Several questions must be asked such as:

  • Will bankers, suppliers, customers, etc. be willing to continue with new management?
  • Is the surviving spouse knowledgeable enough to take action regarding ongoing business concerns?
  • Will the family need to rely on key executives?
Provisions for liquidity can be made through a combination of life insurance and personal savings while income provisions can be made through deferred compensation plans, redeeming stock and or dividends. Determining the value of a closely held business can often be difficult. A buy/sell agreement is one way to set a value at the time of death to possibly avoid any prolonged and costly argument with the IRS.


Not a deposit; not FDIC insured; not guaranteed by any federal government agency; not guaranteed by the bank; and may go down in value.