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Things to consider when selling the business to a child

One way to transfer your family business to one of your children is simply to sell the company to them before you pass away. They take over ownership, and you don't have to worry about suddenly handing them the company at the end of your life.

There are benefits here, but you also want to consider some potential drawbacks.

For instance, maybe you want to sell the company to your daughter, the elder of your two children. She does not have the money to buy it from you all at once. One potential solution is to sell it to her and set up an installment plan so that she can pay off the value over the next 10 years.

Doing this, however, can create other problems. What if she pays for two years and then you pass away unexpectedly? Now, what happens to the debt? You may feel tempted to just waive it in your will.

That can work, but there are circumstances where doing that triggers extra taxes on the estate. If you have multiple children, they end up sharing that tax burden.

What this means is that your other child may end up paying taxes, even though only your daughter got the business. This can make the division of assets become unequal, even if you did all you could to leave equal bequests to both of your children.

This is just one example, but it helps to show how complicated business succession planning can be, even when it starts out seeming simple. Make sure you take the time to really consider all of your options and what steps you want to take.

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