A lifetime of building a successful family business can quickly unravel if you don’t plan for what we all must inevitably face: death and taxes. While most of the nation’s 21 million businesses are family owned, only a third survive into the second generation and a paltry 15 percent into the third, according to the Small Business Administration.

A business succession plan only ensures the business lives on; it can minimize onerous estate taxes and preserve familial relations.

“One of the first things to overcome is the mother or father figure giving up control,” says Cheryl Gordon, an attorney and certified public accountant with Abel Band in Sarasota. “They have to work with the second generation and make sure they can take it over and that they train them to take it over.”

PLANNING FOR THE FUTURE

1. Compose your thoughts about what you want to happen to the business. “You want to start thinking about it, especially when the kids are starting to work in the family business,” says Gordon. Consider the timetable of when you’d like to back away from day-to-day control. It’s better to cede control gradually rather than all at once.

2. Identify successors. “It’s complicated if there is more than one child in the business and whether they get along,” says Gordon. Ideally, the children are involved in the business long enough for the owner to identify their skills—one may be a natural salesman, while the other has the skills to be CEO.

3. Consider how to treat heirs who are not in the family business. “The business may be the estate’s major asset,” says Gordon. “One of the toughest things is valuing the business. It can be expensive.” Consider leaving other assets to children not involved in the business, such as real estate, cash or life insurance.

4. Outline timetable for passing business on to heirs. There are many options to minimize estate taxes, says Gordon. “You can gift stock to heirs,” she says. “But make sure you have a buy/sell agreement between them” in case of divorce or death, so control stays among family members. IRS rules allow someone to give away $12,000 per person per year ($24,000 to a married couple) without paying taxes. “I worked with someone who gifted the whole business away” over time, Gordon says. “But it takes a special kind of relationship to make it work.”

5. Talk to the family about the overall situation. Gordon recalls a situation where a father put off making a decision about how his sons should take over his business. After the father died, the song with the stronger personality won and the other son walked away. “I don’t think that’s what the parents wanted,” Gordon says. Family members are often reluctant to sue other family members, especially their siblings, so the more difficult child usually wins. “Don’t put your head in the sand and avoid it,” says Gordon. “If you leave it to the kids to try and resolve it after your death, it won’t end up well.”