Now is a fantastic time to give shares of a business to family members.

According to most tax experts, now is a fantastic time to give shares of a business to family members. As you may well know (if you follow this blog) 2011 and 2012 are have unique in terms of estate and gift tax planning. As one tax attorney was quoted in a recent New York Times article, “We are in the prime transfer tax situation.”

However, having said that, there’s an old saying about not letting the tax tail wag the dog. While now may be the prime opportunity, tax-wise, to give away share of the family business to the next generation – a bigger question is whether you should give away the family business at all. While it may seem like both a loving gesture and a way to ensure the longevity of the enterprise, gifting can be the worst possible option for both the business and the family that owns it.

Tom Deans, author of Every Family’s Business, is a critic of what he calls “the longevity myth” that surrounds family-owned businesses. He says that giving away a business is both corrosive and dangerous. His advice? Your family business ought to be sold – whether to the next generation or to an outside buyer.

“It’s not about denying the next generation anything,” Mr. Deans said. Rather it’s about preserving what he considers to be the family’s true legacy — not the business itself but the two most precious things that the business creates: substantial personal wealth and the values required to nurture the next generation of entrepreneurs.

            In today’s tough economic times, it may make sense to heed Mr. Deans’ advice. For most small business owners, their business is their estate. You are well-advised to discuss your situation with a qualified professional before deciding whether to gift your family business to the next generation, sell it to them through some type of structured arrangement, or sell it outright to a third party.

 

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