How to stress-test the family business wealth transition plan

In this episode of The Voice of Family Business on Capitol Hill, host Pat Soldano examines wealth transition planning with Sean Aylward from EY Family Enterprise Business Services.

For generational family enterprises looking to maintain longevity and stability, having a sustainable wealth transition plan is essential. Guest Sean Aylward, a managing director in Family Enterprise Business Services at Ernst & Young LLP, shares the core strategies for developing and stress-testing a comprehensive, actionable wealth transition plan.

There are several reasons why family businesses should prioritize updating their wealth transition plans now. The estate tax exemption, which is currently at a historic high, is set to expire at the end of 2025. Further fueling a sense of urgency is the impending transition wave, where the top leadership is expected to change at about three-quarters of family businesses, which could lead to disruptions.

When developing a wealth transition plan, Aylward advises family businesses to concentrate on five critical areas beyond tax considerations: governance structure, asset allocation, privacy concerns, liquidity issues, and adhering to compliance and reporting requirements. He also advocates taking proactive measures such as creating a detailed playbook for successors to follow. The guide should outline the process for communicating information and include how the deceased family member’s personal and business affairs should be addressed. 

By establishing, reviewing and stress-testing the wealth transition plan, generational family businesses can enhance decision-making, safeguard continuity and honor the family’s legacy intentions.

Key takeaways:

• As assets and beneficiaries continue to grow, family businesses should periodically evaluate their wealth transition plans.
• The current estate tax exemption, set to expire, in 2025 is generating an increased interest in wealth transition planning.
• An estimated 75% of family-owned businesses are expected to go through a leadership transition wave. Having a ready and actionable transition plan can help minimize disruptions.
• Beyond tax considerations, wealth transition plans should address governance, asset allocation, privacy concerns, liquidity, and compliance and reporting.
• Families should develop a playbook with clear instructions to survivors that includes dealing with personal and business affairs.

Presenters:

• Sean Aylward, Managing Director, Family Enterprise Business Services, Ernst & Young LLP