Succession Planning for Family Businesses and Other Special Assets

Jul 13, 2022 | Special Assets

As Baby Boomers (people born in the United States between 1946 and 1964) approach their retirement, they must consider how best to transfer their wealth to the next generation. There are nearly 12 million Baby Boomers who own a business, and 70 percent of them will retire over the next 15 years. Estimates of the total wealth locked up in these companies run in the trillions of dollars. In fact, recent studies suggest that on average, special assets, or illiquid assets (e.g., residential, or commercial real estate, oil, gas, or mineral interests, farmland, timberland, and closely held business interests), make up as much as 55 percent of the asset portfolio of high-net-worth individuals.

Some in banking and finance might suggest these assets be liquidated to make the wealth transfer process easier; however, this solution does not necessarily serve the needs or wants of every individual or family. Many families have a desire to ensure management and ownership of these holdings are responsibly transferred to the next generation.

While for many it may seem like the transition of power within a family business is years away, planning now is the best strategy. It can take years to ensure that the next generation is fully trained and experienced. Starting the conversation and preparation early allows business leaders to have ample time to brainstorm, document, and execute both the management and ownership succession plans.

Management succession planning may include:

  • Development, training, and support of successors.
  • Delegation of responsibility and authority to successors.
  • Outside directors/advisors, if needed, to bring objectivity to the process.
  • Maximizing retention of key employees through equitable compensation planning for management, family/non-family employees, and active/inactive shareholders.

Ownership transfer planning considerations may include:

  • Coordination between who will own the business and who will manage the business.
  • Consideration of the best interests of the business and the owner’s family.
  • Timing of a transfer of the business during your lifetime. This may provide you with the opportunity to consult with the successor(s).

Many families have a desire to ensure their holdings are responsibly managed under a trustee structure that not only maximizes the value of these assets, but also promotes good stewardship. In many cases, holdings placed in trust also allow the owner to transfer substantial ownership interests to the younger generation while retaining management control. As an independent, directed trustee, Cumberland Trust is well-positioned to understand and help families retain unique assets held in trust. We specialize in education, administration, and client service, while the client’s chosen professional advisors manage the trust’s assets. This distinct difference sets Cumberland Trust apart from other corporate fiduciaries and allows us to focus on providing our clients with high quality, personalized trust and estate administration services.

Cumberland Trust has a dedicated Special Assets team comprised of professionals with years of experience administering these holdings. Often, our team coordinates the special asset management in conjunction with an external asset manager selected by the client(s). This arrangement empowers clients to remain involved in the asset management. For example, if a family has a commercial property held in trust, Cumberland Trust’s directed trustee platform allows the family to be involved in selecting the property manager— whether that person is a local property manager or a family member who possess the knowledge and expertise required of the role. A similar arrangement could also apply to the management of a family’s tract of timberland, a working farm in Mississippi, or mineral interests in West Texas.

It is important to consult an estate planning professional who can help you develop a strategy for your estate plan that is right for you and your family’s specific circumstances, while considering any family businesses or special assets. Whatever your family’s goals; Cumberland Trust is committed to helping you reach them. We offer the expertise, unbiased support, and the consistency you deserve, and are devoted to helping you protect your family’s legacy.