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A family business is often a family's largest asset, yet an estate plan built only around a will or a generic trust rarely accounts for how the company should actually be run, sold, or divided after an owner's death.

Rogers, Sheffield & Campbell, LLP has advised Central Coast business owners on succession planning for more than five decades.

Why Family Businesses Need a Separate Succession Plan

Passing down a family business is harder than most owners expect, and the numbers back that up.

• Only 30% of family-owned businesses successfully transition from the first generation to the second, and just 12% make it to the third, according to SCORE, a nonprofit resource partner of the U.S. Small Business Administration.
• 47% of family business owners who expect to retire within five years have not named a successor, the same SCORE data shows.
• Only 13% of family businesses remain family-owned for more than 60 years, according to the same SCORE data.

Without a plan addressing management control, ownership percentages, and buyout terms, a business can stall or fracture the moment its founder steps back.

What Legal Tools Protect a Family Business in an Estate Plan?

A buy-sell agreement sets out who may buy an owner's interest, at what price, and under what triggering events, such as death, disability, or retirement, preventing disputes among heirs who may not want to run the company together.

A revocable living trust can hold business interests alongside real estate and other assets, letting a successor trustee step in and keep the business operating without waiting for probate. Restructuring ownership through a family limited partnership or LLC can also separate management control from economic ownership.

How Do You Choose a Successor Without Dividing the Family?

Not every child wants to, or should, run the family business, and treating unequal roles as unequal love is a common planning mistake. Owners can leave the business to an involved child while equalizing other children's inheritances with life insurance, real estate, or other assets.

Where no family member is ready or willing, a plan can name a key employee or outline a sale process, so the business itself, and the jobs tied to it, survives the transition.

What Happens to a Family Business If an Owner Dies Without a Plan?

Without a trust or buy-sell agreement in place, a business interest passes through probate like any other asset, freezing major decisions until the court appoints someone with authority to act on the estate's behalf.

A will alone does not prevent this delay, since a business interest named in a will is still subject to probate administration. Heirs who never worked in the business can also end up holding voting shares alongside those who run it day to day, a common source of family conflict.

What Tax and Valuation Issues Come Up?

A closely held business needs a defensible valuation, since heirs, the IRS, and potential buyers may each have different incentives to value it differently. Estate and gift tax exposure, and the availability of a stepped-up basis for inherited assets, both depend on how the transfer is structured.

Life insurance is often used to fund a buy-sell agreement's purchase price, giving the business or the remaining owners liquidity to buy out an estate without selling company assets or taking on new debt.

How Rogers, Sheffield & Campbell Approaches Family Business Succession

Stephen W. Erickson has developed a particular focus on succession planning and succession disputes, advising business owners ranging from closely held family companies to international conglomerates on how to combine estate planning with business continuity.

Schedule a Case Evaluation

A family business built over decades deserves a succession plan built with the same care. Rogers, Sheffield & Campbell, LLP works with Santa Barbara, San Luis Obispo, Ventura, and Los Angeles County business owners to structure estate plans that keep both the family and the business intact.

Call 805-963-9721 to schedule a consultation.

Sources

1. SCORE, “What Makes a Family Business Successful”
2. U.S. House of Representatives press release on the Small Business Succession Planning Act

The information on this page is provided for general educational purposes only and does not constitute legal advice. Every case is different. Past results do not guarantee future outcomes.