Succession Planning: Transitioning Your Money to Your Family

It is the mission of many adult’s when succession planning, whether they own a company or not, to leave money for their kids. Those who own a company have a greater advantage to gifting this money to their kids.

For every adult with this desire, there are simple curiosities that form:

What amount of money the parents desire to retain?

What amount of money is ideal for the children and is there an amount too large?

What can be done to limit the taxation of the gifting of this money?

It is beneficial for the owner to add these concerns to their Succession Planning process: “What amount is ideal for my lifestyle once i leave the company?”

When the concerns for the finances after leaving the company are clear, the bigger concerns can be addressed for their kids. A system to gift the money while avoiding heavy taxation.

“I desire to give all of my offspring’s the maximum amount possible without being penalized tremendously through taxation. Advice would be greatly appreciated.”

The system includes these actions:

The adults finances get addressed first then the gifting of the money.

Define how much money should be gifted (defining what would be the maximum amount given).

Create a money gifting system that gives the child the biggest amount instead of the government.

First Concern: What amount of money would you like to keep after departing the company?

This is usually the most pressing question to any adults when starting the process of granting the money. What amount should be gifted and what amount should be kept? This is when a good hard look at the Succession Planning concerns can be very beneficial as you should have already answered the amount of money you determined you’ll need. Once the parents determine what amount of money they require the amount that they can give becomes apparent.

A good guideline is to never start granting money to your kids before you yourself are secure in your finances. Until the company owners are financially set you cannot determine what amount is correct for the children.

The starting action to succession planning so that the concerns may be written down. The desires have to be clear or there is no reason to start this process.

The Succession goals for most owners are the following:

Time frame for when you want to leave the company.

What amount of money is needed for the lifestyle you desire after you retire?

Who is going to run the company after I leave?

It could be helpful to figure out how much money the parents will need first so that how much money can be given to the kids is clear. It is suggested that a team of advisors is formed to help with discovering the solutions to these concerns in your succession planning.

Second Concern: Is there an amount that is too high and what is the ideal amount for the children?

A great concern for most owners is what way they can take to grant the kids the largest amount they can: Considering the wealth of company, what is fair to the kids without being a ridiculous amount to grant them?

Owner’s often battle the concern of giving an unhealthy amount, it is important that the kids have to work for the gift. It is not often seen that offspring’s are given large amounts of money by never working to help the company. Trusts are put into place to make sure this doesn’t happen and responsibilities in the business are given. Both are ways to give the kids the money you desire them to have while also making sure they are active in the workforce. We see this plan work not matter the size of the gift. Clear actions can be taken to grant this gifting/working situation.

Restricting ability to get the money

Restricting direct control of the money from your kids can be achieved by these actions:

First Action. The owner creates a partnership where they have control over the wealth. Although the family is a part of these agreements they have a small amount of control over them.

Second Action. Developing a trust for all of the kids. Over time these will have control of the partnerships. Although at this time the kids may gain some of the wealth they are subject to the rules that have been put into place.

Guidelines are completely customizable throughout your succession planning. Usually they always prevent the kids from being able to get the wealth whenever they want. Deposits of the wealth come throughout time for the kids. This gives time for the kids to age and gain wisdom before granted control over the money. It can also train the kids to develop an appreciation for the money.

Owners may also consider types of trusts that grant the kids ability to use the wealth immediately. These are protected by the government and have pluses 1. If the kid passes the money can’t be taxed and 2. If in debt the money cannot be taken to pay it off.

Guidelines can be added to these where kids have to reach certain goals on their own before being granted the money. Such as:

Amount of revenue. The offspring has made a certain amount a year on their own which grants them part of the money.

Charitable Careers. The owner grants wealth to kids that work in beneficial fields to society.

Trouble with the Law. If the kid has had trouble with the law they could be kept from the wealth.

Becoming a Parent. By having a child the owner might give the kids part of the wealth and they cannot receive it before then.

There are a lot of ways an owner can customize their succession planning with ways a child can obtain the wealth. A recommended option is that someone outside of the family is put in charge of making sure these guidelines are followed.

The choosing of a person to be in charge of the distribution of the wealth is an incredibly important part of succession planning. There are many things you should look for and be aware of when choosing this person but here are a few major ones:

How much are you willing for them to be aware of?

What span of time will they have to be in charge of this?

How much is it worth?

What kind of wealth is important when choosing who should be put in charge of it?

Someone outside of the genetic pool or someone in it?

Is there an individual who can monitor or fill in for the person in charge if needed?

Third Action. Once decided what guidelines will be put into action during the succession planning, the partnership is extended to the kids. A sense of wealth has now been given to the kids.

When the amount in question is large, often business owners will not continue with organizing this system as they are worried about the taxation that could happen as soon as they grant the children they’re trusts. It is very true that commonly owners have the ability to give their kids all the money they want.

At this moment you must address: What amount, what time, and what guidelines are going to be put in place for the wealth to be gifted?

Being Prepared can Grant Benefit

There is another layer to this process that should be kept in mind. If an owner’s spouse, or them themselves pass away, the money that is transferred cannot be taxed. The only time penalization will hit is in the case of both of their deaths.

During this succession planning process there is a way to grant the kids the amount of money desired, through the Estate Plan when one partner dies the money is transferred to the spouse that is left. After the first spouse passes, the money will immediately go to whoever it is designed to be gifted too, whatever remains will be given to charities once the remaining spouse dies. This can be to whatever foundation they choose, and provides these benefits:

Kids are able to be gifted the money that is desired for them.

The owner and their spouse have whatever money is set aside for them.

With the death of both spouses, the remaining money is given to whatever foundation they desire.

No taxation can touch this money. An estate plan is a detailed process that takes time.

Third Concern: What strategies prevent the most amount of taxation when gifting money?

This is a method that has been used for many years, and was developed very early in history. A very useful tool in your succession planning. Finding strategies that give the best benefit is highly recommended. Being aware of advantages that can maximize the money is important in achieving success.

This trust is a great option but is one of many that protect the money from taxes. Succession Planning ideas and strategies will help you reach your Succession Plan goals.

The best way to achieve this are:

Smart ways of granting money.

A proper time period.

A team that can help protect your money.

Grantor Retained Annuity Trust

The kids are granted wealth when the money reaches the trust. The sum that is granted is the wealth of the money gifted subtracted by the worth that the CEO is going to remain obtaining.

This trust will gain worth and create revenue while the government collects interest to it every thirty days.