It’s Not about What You Leave to Beneficiaries, Its How You Leave It

There are three primary potential beneficiaries of the wealth you have built in your business: your family, charities and employees. The IRS should be a distant fourth. Most business owners want to maximize the value they can leave to their family and heirs. After that, if given the option between the IRS and charities or employees, most will choose the latter two options.

Business owners have the freedom to choose among their potential beneficiaries, and can customize business succession planning based on their personal and philosophical objectives.  If planning is done well and early the estate tax may be the only “voluntary tax” paid during their lifetimes.

The Importance of Planning Early

By planning early, business owners can provide financial independence and peace of mind for themselves, while maximizing the benefits for future generations of family along with charities and employees.

Ask yourself, what does financial peace of mind mean to you? What amount of liquidity, cash flow, diversification and type of risk profile can fund the lifestyle to which you want to become accustomed? This consideration goes beyond developing a budget. It is important for you to build a financial cushion so you will never need financial support from others.

Another way to view your long term wealth planning is to think in terms of macro, multi-generational wealth positioning. The earlier you secure your plan and financial needs, the earlier you can begin to think of future generations and other beneficiaries. 

The “Protective Wrapper”

Keep in mind that it is not what you leave to your heirs, but how you leave it that can make the biggest difference in the benefit they receive. By leaving assets in a “protective wrapper” such as a trust, particularly one that embodies your objectives and family wealth philosophies, you help create significant protection against litigation and divorce issues on behalf of your beneficiaries.

In other words, you can do for your family what they cannot do for themselves. Your “ounce of prevention” by leaving in a trust, can help prevent a “pound of cure” from potential litigation.

For families transitioning business interests to both active and non-active family members, it is crucial to establish appropriate “rules of the road” to align mutual benefits to all shareholders. Rules for entry, exit, compensation, promotion, dividend, etc. How you build the framework and implement agreed upon rules of the road, goes a long way towards helping to avoid disharmony among your family members.

Find More Insight

Your PNC corporate and wealth team has the experience and financial modeling tools to help you “fast forward” down the road of life. Make sure your team understands your objectives. They can outline your options so you can gain control of perhaps the most important financial decision you will make during your lifetime.

Please contact your PNC representative to further explore business succession planning.