Many family businesses stayed strong because their ownership is passed on to the founder’s heirs. As such, the effective leadership style remained, and the business stayed true to its brand. But what happens if the heirs stop being interested in the business?
The tradition of passing the business’s ownership to your heirs may be important to your family, but you can’t force your children to lead the business if they don’t want it to begin with. What if they aren’t even skilled in management? Their prestigious education won’t develop their entrepreneurial flair if they’ve already got other, more remarkable talents.
Besides, it’s not only a business that’s worth passing on to your heirs. There are other ways to leave a legacy that doesn’t involve increasing the wealth of your kin further. With the help of an experienced financial planner, your heirs can have what they want later in life without the cost of your family business’s life.
Below are the things your children can inherit other than your empire:
1. A Charitable Foundation
If your family has been in business for long, chances are you’ve established at least one charitable foundation. Consider passing that to your heirs instead of the business. If you don’t have a foundation yet, encourage your heirs to use the inheritance money for setting it up. Let them find their advocacy.
A charitable foundation gives you the opportunity to share your blessings. It will allow you to leave a more meaningful and long-lasting legacy, since people outside your family are benefiting from your blessings, too. If you don’t have heirs at all, setting up the foundation yourself is a remarkable way to leave your legacy. You don’t have to wait until you’re gone to start it.
2. A Personal Matching Program
In some cases, it’s you who’s hesitant to pass on the business to your children. And there are several good reasons to deny them future ownership. For instance, they’re awful at managing their finances. If their personal savings often go to unnecessary indulgences and material possessions, they will likely jeopardize the financial health of your business, too.
While no parent wants to focus on the worst of their children, it’s sometimes sensible to do so. You shouldn’t risk the success of your business just because of an old tradition. But you can help your children improve their money habits.
Consider introducing them to a personal matching program. It’s a savings program that matches a client to a particular financial account so that they can develop a stronger discipline in spending and saving. Here’s how it works:
For example, your daughter is a senior college student who has a part-time job during the school year, and a full-time job during breaks. She hasn’t set a rule for saving money. She isn’t eligible for a retirement benefit at work either. And she’s not thinking about her retirement yet, since she’s pretty young. But she does think that she’ll benefit from her inheritance money one day.
To keep her from spending her inheritance money impulsively, make a deal with her. For every dollar she saves from her salary, match her to a dollar-for-dollar for, say five years. Your match, meanwhile, goes into her retirement plan, which she must agree not to touch until her retirement in the far future.
As a result, your daughter will have $30,000 in five years if she saves $500 every month. And when she retires, she’ll finally get her hands on the retirement plan she had agreed not to touch before.
3. Your Vacation Home
If your children prefer an inheritance with a sentimental value over one with a monetary value, consider your vacation home. For families, especially big ones, vacation homes hold many memories and serve as the main reunion venue during significant occasions. In addition, real estate has financial benefits, including tax breaks for families distributing properties between siblings.
However, real estate can also be a source of disagreements and problems between family members, so keep that in mind. To avoid disputes, set up a family limited partnership or a trust. It will make the transfer of interest to the property easier.
4. Annuity Funds
An annuity works similarly to a retirement plan. Name your children as the beneficiary, so that they can have an additional income stream over their lifetime after your death. Like the retirement plan in a personal matching program, your children can’t also access their money until your death.
Ideally, you should start contributing to your annuity while your children are still young. That way, they’d have a larger income stream when they become older adults.
Your children should be free to use their inheritance money however they see fit, so don’t feel bad if they don’t want the family business. If you have a close relationship with them, they’ll definitely want to remember you in more meaningful ways than an empire.