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Incentive Trusts: A Business Succession Formula for Success in Virginia

Family business treeFor some of our clients, their single largest investment is the family business. Unfortunately, the likelihood that this investment will survive the transition to the next generation is remote. Less than one-third of family businesses survive the transition from the first to the second generation, and only about 10 percent survive the transition to the third generation, according to stats reported in the Harvard Business Review.

For those planning for the succession of their family business, there are some troubling statistics to consider when it comes to heirs and inheritance. While these statistics can be traced to a lack of motivation and hard-fought discipline, a trust may hold the key to success. This matter was addressed in a recent article in the Journal of Financial Planning titled “Investing in Future Generations: Evolution of the Business Skills Trust.

First, the troubling statistics: “Less than one-third of family businesses survive the transition from the first to the second generation, and only about 10 percent survive the transition to the third generation, according to stats reported in the Harvard Business Review.” While wealth can be transferred through a bit of effort on the planning side, it is not the same as transferring the motivation and the ability to pull it off thereafter.

How can a trust help with motivation and to train up ability? That depends on how you frame the trust and the conditions you set to slowly bring a beneficiary/heir up to speed. The original article has some very specific advice, but the main point is that incentive-based trusts are a powerful tool.

If you have a business that needs to be run, and a legacy to leave behind, then you could do well with an incentive trust plan. So, what values do you enshrine in the trust and how do you offer incentives? The answers to these and other salient questions are specific to each and every situation and family.

You can learn more about this topic as well as other strategies on our website under the tab entitled: business planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.

Reference: Journal of Financial Planning (June 2013) “Investing in Future Generations: Evolution of the Business Skills Trust

 

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The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.