Hartford Business Journal

HARTFORDBUSINESS.COM | JUNE 16, 2025 7 Family businesses need a succession plan S P O N S O R E D C O N T E N T Banking products and services are offered by KeyBank National Association. All credit, loan and leasing products subject to credit approval. ©2023 KeyCorp. KeyBank is Member FDIC. 220315-1508958 We have fresh ideas to move your business forward. T he correlation between succession planning for family businesses and successful transfers to the next generation could not be more direct. One third of family-owned businesses have a succession plan; one third of family-owned businesses survive the transfer to the second generation. However, what makes succession planning difficult for family-owned businesses—and why so many don't do it—is the family itself. The subject can be difficult to broach, family dynamics create unique variables, and taxes and fees need to be considered. Be on the right side of the statistics With each generational transfer, business survival becomes harder and the percentage of success falls off precipitously. Those that do it well—again and again—share a common trait: they plan early and with intention. Here's how your family business can join them. • Inclusion. Involve the next generation in business operations as early as possible. You want them to feel a sense of ownership and have an understanding of the company's values, culture, and position within the market. • Development. Identify potential leaders and create development plans they are accountable for fulfilling. This will position them to be successful once they step into their leadership roles. • Vision. Ensure there are short-, medium-, and long-term goals and defined strategies for achieving them—with or without current leadership. • Execution. Develop a clear, well defined, fair, and transparent plan. Some family members may not be satisfied with the outcome, but strong execution can help promote continuity and understanding. The financial side of the succession plan In simplest terms, succession planning is about transferring ownership and control of a business to a new party. The better positioned the company is for success and the more attractive it is to buyers, the more value the company will have. Even if the plan is to keep the company in the family, financial needs and financial planning remain paramount. The following strategies are often employed to transfer ownership of family-owned businesses to the next generation. Goals include addressing the owner's need for retirement income and minimizing transfer taxes. • Gifting. From annual exclusion gifts to gift tax exemptions and gifts of family LLC interests, gifts remove the value of the business interests gifted from the business owner's estate. Gifting also provides the owner with the opportunity to retain a voting interest in the business. • Sale. Two common sales strategies are installment sales and private annuities. An installment sale provides a steady stream of cash flow to the business owner and presents a clear transition of ownership of the business to children. A private annuity requires active children to make periodic payments to the business owner (annuitant) over the course of the owner's lifetime. Annuity payments terminate upon the business owner's death, so neither the business interest nor annuity is included in the owner's estate for estate tax purposes. Also, because the private annuity constitutes a sale, the business owner can remove the business interest and future income for his estate without incurring gift or estate tax. • Estate freezing. A grantor retained annuity trust (GRAT) is a more sophisticated tool. It involves a one-time transfer of property in which the business owner (grantor) receives the right to receive a fixed amount of money over a specified term of years. There are numerous benefits of GRATs, including reduced estate and gift taxes, tax-free asset growth, flexibility, wealth transfer efficiency. Just as your family and business are unique, the arrangement for transitioning your business to the next generation of family ownership is also unique. To ensure these unique needs are met, and the right strategies are employed, build a strong professional advisory team consisting of an attorney, CPA firm, and bank/wealth advisor. This team can provide you with the guidance your business needs to thrive in your absence, as well as ensure your financial needs are met for the remainder of your lifetime. Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual author(s), and may not necessarily represent the views of KeyBank or any of its subsidiaries or affiliates. This material presented is for informational purposes only and is not intended to be an offer, recommendation, or solicitation to purchase or sell any security or product or to employ a specific investment or tax planning strategy. Non-Deposit products are: NOT FDIC INSURED • NOT BANK GUARANTEED • MAY LOSE VALUE • NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL OR STATE GOVERNMENT AGENCY | KeyCorp ©. 2025 | CFMA #250604-3259028 By: Mark Commune, Senior Vice President and Private Bank Market Leader, Key Private Bank About the Author: Mark Commune serves as Senior Vice President and Key Private Bank Market Leader for KeyBank's Connecticut and Massachusetts market. He leads a wealth management team located in Hartford that provides objective and skilled advice and financial solutions for high net-worth individuals and families throughout Southern New England. Mark is located in KeyBank's business offices at 225 Asylum St. Suite 1910 in Hartford and can be reached at mark_commune@keybank.com.

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