The prospect of whether or not a family business will survive after the owner passes is questionable. And although the statistics regarding succession of family business to heirs can be disconcerting, there is hope out there in the form of trusts.
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.
Reference: Journal of Financial Planning (June 2013) “Investing in Future Generations: Evolution of the Business Skills Trust”