Planning to hand off significant assets, especially a business, to the next generation is a financial decision but one that also requires the careful handling of a family’s internal dynamics.
That is according to North Bay wealth managers and lawyers who advise clients on retirement and safely transferring family holdings between generations.
That can be particularly true of wine businesses, which are often family-owned, according to Lauren Galbraith, a St. Helena based attorney with Farella Braun & Martel specializing in business succession and estate planning and other topics.
“With wine families, what you do see is one or two children are going to work in the business and there is often some kind of preferential treatment with them with economics or voting and control,” Galbraith said.
The best way to advise a family, she said is “being a sounding board and being one of several voices in the room helping a client think through what will be best for the business and also what will work for this family maintaining the peace.”
Sometimes that means making hard choices.
“[Sometimes] they have to come up with hard decisions about maybe isolating control into a subset of the beneficiaries because that is best for the business,” Galbraith said.
A crucial step in handling those dynamics is meeting with family wealth directors like Rupa Jack of the Santa Rosa- and Napa-based Sonoma Wealth Management Group at Morgan Stanley.
“Oftentimes, owners are really hesitant to discuss what is going on with their business with their children,” Jack said, adding she and her team created “the ability for the owner to take time and step back and have a family meeting where they can discuss decisions with family members with reduced conflict and confusion.”
The succession planning process can involve financial planners CPAs, licensed fiduciaries, lawyers and other professionals and orchestrating the different players is essential to a successful transition of wealth. “In order for there to be a successful business succession plan you have to start with a business plan for the business,” according to Donald Black, an attorney and co-managing partner at Anderson Zeigler in Santa Rosa specializing in succession planning and other topics.
Once the plan for the future viability of a business is hammered out, “you segue from that to both financial planning and estate planning and especially estate planning for the current owner, then you bring in the CPA to do tax planning around all of that,” Black said.
Those steps can also have immediate positive impacts on a businesses’ health, according to Jack. It could increase a business’s value as well as potentially secure “more favorable terms from banks in financing arrangements,” she said.
Handling tax exposure is also a challenge faced by those transferring assets, according to Charles Root, managing director at Double Eagle Financial in Santa Rosa.
There are few tax hurdles with estate planning and asset transfer unless it’s done during life, Root said. He noted that when a loved one dies, currently couples can have more than $20 million in assets without exposure to estate tax.
Transferring a business or other assets when the owner is still alive can be beneficial in the long run however, according to Galbraith.
“Lifetime gifts can be a technique to reduce estate taxes because making a gift today before there’s been substantial appreciation is a way to leverage your gift and estate tax exemption,” she noted.