The statistics are staggering: There are 17 million family businesses in the United States, representing 64 percent of the U.S. gross domestic product. However, less than a third of those family businesses survive into the second generation, and only 12 percent continue to be family controlled in the third one.

This occurs despite estimates that family businesses are more successful than nonfamily businesses, earning on average a 6.65 percent higher return on assets. So, what is the best advice for family-business succession planning?1

1. Use a multidisciplinary approach. The first requirement is a multidisciplinary estate-planning approach, focusing on a myriad of tax and nontax issues. Complicated corporate and individual income tax issues must be addressed, and alternative scenarios often modeled, further complicated by the ever-changing estate and gift tax issues that simultaneously come into play.

More importantly, the transfer of a family business requires a keen awareness of family dynamics. Without proper planning, not only may the family business be lost, but financial livelihoods and personal relationships among family members may be destroyed.

2. Leverage estate and gift tax rules. The starting point in most succession scenarios is the navigation of applicable transfer taxes. Historically high transfer-tax exemption levels provide an opportunity to transfer significant wealth to future generations, with little or no estate tax to consider. Nonetheless, attention should be paid to transferring business interests during the owner’s lifetime rather than at his/her death. Not only do such transfers allow for a gradual succession of ownership, but they may be accomplished at significant valuation discounts. Transfers during the owner’s life also provide time to involve other generations in the family business while the first generation is still around to settle disputes.

Business-succession planning is not for the faint of heart.

3. Timing is everything. Another prominent consideration in family-business succession is the timetable and method for retaining, then releasing, control. Transfers can often be accomplished simply, and owners can maintain control by re-characterizing stock, and creating voting and nonvoting interests, and by transferring only the nonvoting interests. The founding generation might also consider transferring the operating business while maintaining building and equipment inside an LLC or similar entity, and leasing those assets to the family business. In those cases, it is imperative to model cash flow, and do so on an after-tax basis.

4. Don’t forget longer-term asset protection planning. Transfers to future generations may also be made into irrevocable trusts, to provide additional levels of asset protection for future generations (in the case of a divorce, for instance, or an unexpected creditor scenario). Careful attention should also be paid to drafting these trusts, to account for the lack of diversification, and to preserve the tax elections necessary for the underlying business. Due consideration should be given to implementing either a business advisory structure, a voting trust or a trust protector, to implement an appropriate mechanism for unified future voting of the underlying business interests.

5. Consider charitable options. Family business owners may also want to implement philanthropic planning into their succession plan. There are a variety of options here: Owners might consider modeling gifts of a small portion of the family business, during lifetime or at death, to a private family foundation, a donor advised fund or a charitable lead or remainder trust. Invoking these strategies often leads to minimizing income and estate taxes for the owners as well as for future generations.

In sum, business-succession planning is not for the faint of heart and is easily compounded by both family dynamics and complicated tax rules. Nonetheless, with proper advice and guidance, family business owners can leave a legacy, instill values and secure a valuable resource for loved ones for generations to come.

1David Thayne Leibell and Daniel L. Daniels, “Warding Off Analysis Paralysis,” Trust & Estates journal, June 1, 2011. Family Firm Institute, Inc. See global data points at http://www.ffi.org/search/all.asp?bst=global+data+points.

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This article was originally published in the August/September 2016 issue of Worth.