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Is it Time to Dust Off Those Family Transition Plans?

Steven E. Staugaitis, CPA, CVA Director, Audit & Accounting, Small Business Advisory Services Group Leader, Family-Owned Businesses Group Co-Leader

The Role of an Emergency Plan and a Shareholder Agreement in a Family Business Transition

There is no doubt that these past few months have been incredibly stressful. Family businesses have faced business shutdowns, low employee morale, health and safety issues, and endless uncertainty that seems to change by the minute. Yet, the resilience shown by these business owners has been nothing short of commendable. As these summer months have seemingly stabilized, we have seen family business owners take the opportunity to revisit their transition plans. For a variety of reasons, the timing of transitioning family wealth is optimal right now.

Estate and Gift Tax Exemption Levels

Estate and gift tax exemptions are at all-time highs and with federal and state governments running up massive deficits trying to manage the pandemic, it is unlikely these levels will remain where they are for an extended period of time.

The current legislation that includes an $11,580,000 estate tax exemption per individual sunsets at the end of 2025 and will revert to half that level. As it stands today, a business owner and their spouse can transfer just over $23 million of wealth before incurring any estate or gift tax. In addition, certain estate planning techniques utilize current interest rates as a means for transferring wealth – the lower the rate, the more value can be transferred. This is particularly appealing considering interest rates are at near historical lows.

Business Valuations

Temporary disruption to business operations coupled with near-term uncertainty will likely increase the risk associated with businesses, and conversely, their valuations. Gift tax valuations, in particular, often rely on historical performance as a proxy for determining future earnings. In cases where the pandemic is anticipated to have a more lasting impact on the family business, the use of a discounted cash flow approach that takes into account short-term projections may warrant consideration. On the other hand, lower rates of return will have the opposite effect on valuations, as lower rates of return increase the value of a business.  Revisiting family business valuations is an important step that will coincide with family wealth transfer planning.

Next Generation Leadership

During these tumultuous times, the next generation family members working in the business are certainly having their leadership qualities tested. Having to make tough decisions and navigate through rapidly changing business environments is a real opportunity to hone their business acumen and leadership skills.

Many family business founders face tough decisions early in the evolution of the business and by the time the next generation is involved, those rougher times have passed. As such, the senior generation is often left wondering whether their next generation kin is up to running the family business in the long-term. That situation is not necessarily the case now; given recent events, the next generation has been forced into tackling complex business decisions.

Family businesses should consider using the pandemic as an opportunity to pause and revisit their transition plans. Even just evaluating your various options or updating or creating your emergency plan are a good start. For those families that are a little further along in the process, it may be time to start executing those estate planning items. Either way, don’t let this opportunity to make lemonade out of this year’s lemons pass you by.

Steven E. Staugaitis is a director at Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email or 215.441.4600.


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Steven E. Staugaitis, CPA, CVA

Steven E. Staugaitis, CPA, CVA

Director, Audit & Accounting, Small Business Advisory Services Group Leader, Family-Owned Businesses Group Co-Leader

Family-Owned Businesses Specialist, Small Business Advisory Specialist, Business Valuation Specialist, Transition/Exit Planning Specialist

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