Estate Planning Challenges When Your Primary Asset is a Family Business (Pt. 2) – Carrillo Family Manufacturing, Inc.

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The Carrillo family owns a small manufacturing business that has been thriving for decades, specializing in custom metal fabrication. Mr. and Mrs. Carrillo, the founders of the business, have four children: Emily, David, Sara, and Marco. However, only David and Marco have chosen to work in the family business, while Emily and Sara pursued different career paths.

The Carrillos want to ensure that the business continues to prosper after their retirement or passing. The question is, how do they fairly distribute the business assets among their children when only two are actively involved in the company?

Emily and Sara are not involved in the business, so it may not be fair to distribute equal shares of the company’s ownership to all four children. However, the Carrillos also want to provide for all their children’s financial security and future.

The Carrillos are aware that such a situation can potentially lead to resentment or disagreements among their children. They wish to minimize the risk of conflicts while ensuring the best interests of both the business and their family members.

Estate Planning Strategies

  1. Create a Buy-Sell Agreement. The Carrillos could create a buy-sell agreement that outlines the terms for the sale of the business if certain triggering events occur, such as retirement or death. This way, David and Marco can buy out the shares of their non-involved siblings at a fair market value.
  2. Create a Trust. To provide for Emily and Sara, the Carrillos can allocate to Emily and Sara other trust assets outside of the business. This trust can be funded with other assets or life insurance policies to ensure all their children are financially secure.
  3. Equalize Inheritance. While David and Marco may inherit the business, the Carrillos can equalize inheritance by allocating other non-business assets to Emily and Sara.
  4. Open Family Communication. It is essential for the Carrillo family to maintain open and honest communication. The family should discuss their estate plan, explaining the reasons behind the decisions made, and be receptive to their children’s feedback and concerns.

Estate planning for a small business where only some of the children are actively involved poses unique challenges. By addressing these challenges through a well-thought-out estate plan that includes buy-sell agreements, trusts, and open communication, the Carrillos can ensure the business’s continuity while providing for the financial well-being of all their children, creating a secure future for the entire family.

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