--- title: What Is the Best Way to Transfer Ownership of a Business? description: Choosing the right business succession strategy is critical to facilitating a smooth transition and ensuring nothing falls through the cracks. Potential methods include leaving your ownership to your family via your will, gifting the business to family member employees, or selling ownership to a third party. image: https://www.4tfg.com/hubfs/4Thought-Blog-Best-Way-To-Transger.jpg --- [![4thought\_footer-logo.png](https://www.4tfg.com/hs-fs/hubfs/4thought_footer-logo.png?width=335&height=101&name=4thought_footer-logo.png "4thought_footer-logo.png")](https://www.4tfg.com/) - [![4Thought Financial Group](https://www.4tfg.com/hubfs/4thought_footer-logo.png)](https://www.4tfg.com/) [![4Thought Financial Group Compass](https://www.4tfg.com/hubfs/4Though-Compass.png)](https://www.4tfg.com/) - [About 4Thought](https://www.4tfg.com/investment-methodology) - [Our Investment Methodology](https://www.4tfg.com/investment-methodology) - [Management Team](https://www.4tfg.com/management) - [In the Media](https://www.4tfg.com/media) - [Contact](https://www.4tfg.com/contact) - [Services](https://www.4tfg.com/investing) - [Private Individual Investing](https://www.4tfg.com/investing) - [SMAs for RIA /Institutional /Family Office](https://www.4tfg.com/financial-advisors-and-institutions) - [Services for CPAs](https://www.4tfg.com/cpa-investing-services) - [Private Wealth Management](https://www.4tfg.com/wealth-management) - [Retirement Plan Services](https://www.4tfg.com/retirement-plan-services) - [Resources](https://www.4tfg.com/resources) - [Financial News](https://www.4tfg.com/resources) - [Portfolio Review](https://www.4tfg.com/portfolio-review) - [Investment Performance](https://www.4tfg.com/performance-requests) - [CPA Continuing Education](https://www.4tfg.com/cpe-continuing-education) - [FAQs](https://www.4tfg.com/faq) - [FAQs](https://www.4tfg.com/faq) - [Contact](https://www.4tfg.com/contact) - Log In - [Goldman Sachs Accounts](https://custodysolutions.gs.com/client-app) - [Wealth Management](https://wealth.emaplan.com/ema/SignIn?ema) - [Consolidated Reporting](https://client.myadvisorlink.com/auth/users/webportal/4tfg) - [Retirement Plan Services](https://www.4tfg.com/rps-login) - - Log In - [Goldman Sachs Accounts](https://custodysolutions.gs.com/client-app) - [Wealth Management](https://wealth.emaplan.com/ema/SignIn?ema) - [Consolidated Reporting](https://client.myadvisorlink.com/auth/users/webportal/4tfg) - [Retirement Plan Services](https://www.4tfg.com/rps-login) ## 4Thought Investing Resources ## 4Thought Investing Resources [Financial News](https://www.4tfg.com/resources/) [Investment Strategy](https://www.4tfg.com/resources/topic/investment-strategy) [Personal Finance](https://www.4tfg.com/resources/topic/personal-investing) [Business Finance](https://www.4tfg.com/resources/topic/business-finance) [For Professionals](https://www.4tfg.com/resources/topic/financial-professionals)[Compass and Crosshairs](https://www.4tfg.com/resources/topic/compass-and-crosshairs) SUBSCRIBE Subscribe for free tips and articles to help you lead a smarter financial life. [Financial News](https://www.4tfg.com/resources) ,[Investment Strategy](https://www.4tfg.com/resources/topic/investment-strategy) ,[Financial Advisor](https://www.4tfg.com/resources/topic/financial-advisor) ,[Financial News](https://www.4tfg.com/resources/topic/financial-news) # What Is the Best Way to Transfer Ownership of a Business? Choosing the right business succession strategy is critical to facilitating a smooth transition and ensuring nothing falls through the cracks. Potential methods include leaving your ownership to your family via your will, gifting the business to family member employees, or selling ownership to a third party. \[fa icon="calendar"\] Dec 13, 2018, 12:07:12 PM by [Martin E. Levine, CPA, ChFC, CAP](https://www.4tfg.com/resources/author/martin-e-levine-cpa-chfc-cap) ![What Is the Best Way to Transfer Ownership of a Business?](https://www.4tfg.com/hubfs/4Thought-Blog-Best-Way-To-Transger.jpg) Info Sheet - PDF Download [![](https://www.4tfg.com/hubfs/Collateral/Wealth-Management.png "Wealth Management and Financial Planning")](https://www.4tfg.com/hubfs/Collateral/Wealth-Management.pdf) ### **Wealth Management by 4Thought Financial Group** "The comprehensive wealth management we provide involves the coordination and execution of four different types of financial planning: Investment Planning, Estate Planning, Business Succession Planning and Fringe Benefit Planning." [View the PDF](https://www.4tfg.com/hubfs/Collateral/Wealth-Management.pdf) [Save the PDF](https://www.4tfg.com/hubfs/Collateral/Wealth-Management.pdf.zip) [*Learn more about Wealth Management and Financial Planning*](https://www.4tfg.com/wealth-management) [Business succession](https://www.4tfg.com/resources/cpa-cpe-continuing-education-business-succession-planning-for-privately-held-businesses) is one of the most complicated subjects that all privately held business owners are eventually faced with. Business owners do not want to give up control. I recently heard a great comment from a former business owner, who finally at age 85 decided to sell to an unrelated third party: “I should have sold 15 years earlier!” In this business owner’s family, no one was interested in going into the business. But it is much more complicated when family is involved versus not. Either way, there are many reasons to wait. There are also many reasons to act expeditiously. Below are some issues and approaches to consider when dealing with business succession. Your [accountant or tax advisor](https://www.4tfg.com/resources/finding-your-financial-advisor) and lawyer should be consulted before any strategies are implemented. One of the key words above is “strategy.” Transferring ownership of a business is based on a strategy. Once a strategy is agreed upon, a process should be followed to make sure all issues are addressed, and nothing falls through the cracks. **Leaving Your Ownership to Your Family via Your Will**  This strategy is typically the default if no time or thought process was involved. When this strategy is looked at more closely, there are a host of issues. Here are a few: Is the spouse qualified to run the business? If he or she is, that would be terrific. What about professional licenses—would these be required to run the business? If it is a business that has not kept up with the times, how much of an investment is required to bring it current? Does it even make sense to do that? If the business entity owns real estate, maybe the real estate is worth more as a rental property. As you can see, many, many questions can come up. It is best to discuss these issues sooner rather than later. The loss of the founder and his/her long-term relationships can be a colossal failure for the business if the succession process is not planned and started early. **Gifting the Business to Family Member Employees During the Owner’s Lifetime**  Does the business employ qualified family members who are interested in continuing operations after the owner is done? If so, the strategy of gifting the business certainly offers many planning opportunities. If the founder is hesitant to hand over ownership all at once, then the strategy can be to give a little each year. Consideration must be given when determining the value of a gift and the hiring of an appraiser. All [gifting options](https://www.4tfg.com/resources/how-can-i-make-gifts-without-paying-taxes) would require the business to be appraised. This could get very expensive if done every year. Once the business owner gives up 49% of the ownership, they can stop and keep control. Should a trust be used to protect family from outside invaders, like lawsuits, divorce and taxes? Should the trust provide income back to the business owner? Who are the beneficiaries of the trust and how long should the assets stay in the trust? We recently used a strategy called a “sale to a defective trust.” In this case, the business owner received income and principal back in the form of a note payable. A business appraisal was done, which gave a discount to the 49% gift into the trust since it was a minority interest. Many benefits can come from this strategy, including no capital gains tax to the business owner on sale to his own grantor trust, as well as pinning the value of the 49% at today’s value. It’s a complicated strategy that needs mutual involvement from all parties to work successfully. **Selling Ownership to a Third Party**  Does selling the ownership interest make the most sense? It depends on many factors, including the health of the owner, family considerations, the type of business, and whether the owner still enjoys being involved. I have recently seen more and more business owners unable to sell their business because they waited to long. I always think of the basketball coach of the UCLA Bruins, John Wooden, as an example of someone who retired at the top of his game. He’s a college basketball legend. When a business owner is at the top of his game, he can negotiate from a position of strength and potentially get the highest value on sale. There are also creative [planning strategies](https://www.4tfg.com/resources/different-types-of-financial-planning-services) available, such as the use of a [Charitable Trust](https://www.4tfg.com/resources/charitable-giving-ideas-to-benefit-those-in-need-and-your-family) to minimize capital gain taxes and simultaneously enrich a charity. Cash flow projections should be performed for all potential strategies before any of them are implemented. It’s better to err on the conservative side when considering future taxes, interest rates, rates of return, and longevity risk. In my book, “[The Widow’s Survival Guide](https://www.amazon.com/Widows-Survival-Guide-Martin-Levine/dp/0966992113),” I include the following passage, which is pertinent to this conversation: “Remember, ultimately our considerations have to do with quality of life—your life. Your [financial planning](https://www.4tfg.com/resources/retainer-fee-based-financial-planning-wealth-management) should be designed to ensure a comfort level for you and your emotional security. Keep your family together as best you can. Too many families are spread out over vast geographical areas. Whenever possible, it is best to minimize the emotional space between family members. The best investment I can recommend is to maintain the health and growth of family ties.” This above passage remains true today as it did yesterday, and will continue to be true in the future. ### **4Thought Financial Group** Do you want to explore the potential succession planning strategies for your privately held business? 4Thought Financial Group provides [comprehensive wealth management services](https://www.4tfg.com/wealth-management) designed to coordinate your business succession, estate planning, fringe benefits, and [investment planning](https://www.4tfg.com/investment-methodology). Click here to contact 4Thought today and get started. [![Contact Us](https://no-cache.hubspot.com/cta/default/2201374/4a0854da-f418-4296-8ae4-db3ef0bd9f52.png)](https://cta-redirect.hubspot.com/cta/redirect/2201374/4a0854da-f418-4296-8ae4-db3ef0bd9f52) ### Author: Martin E. Levine, CPA, ChFC, CAP ![](https://www.4tfg.com/hubfs/Email/MartyLevine-EmailSignature.png) [mailto:marty@4tfg.com](mailto:marty@4tfg.com) Martin E. Levine is the Chief Financial Officer of 4Thought Financial Group, an SEC-Registered Investment Adviser (RIA). He holds a BBA from University of Miami, an MBA from St. John’s University, and is a Certified Public Accountant (CPA), a Chartered Financial Consultant (ChFC) and a Chartered Advisor in Philanthropy (CAP). Martin has more than 34 years of experience in wealth management, and specializes in holistic financial planning by coordinating all aspects of a client’s financial life. He is also a licensed life and health insurance representative. 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Information throughout this site, including, but not limited to, stock quotes, charts, articles or any other statement or statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Nothing on this website should be interpreted to state or imply that past results are an indication of future performance. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission thereof to the user. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION POSTED ON THIS OR ANY LINKED WEBSITE. Any opinions presented here are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors. \*4Thought Financial Group claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. The GIPS firm definition excludes any third party asset management programs over which 4Thought maintains oversight advisory agreements on behalf of its clients, any arrangements under which 4Thought provides recommendations for client self-implementation, and any assets under advisory but not under direct management (in which 4Thought provides allocation changes or trading signals to third party firms but does not take discretion over the trading of client accounts). GIPS-compliant performance information for 4Thought's strategies may be obtained by email at [info@4tfg.com](mailto:info@4tfg.com); on the 4Thought website at [https://www.4tfg.com/performance-requests](https://www.4tfg.com/performance-requests); or by phone at (516) 300-1617. ```json { "@context" : "http://schema.org", "@type" : "Organization", "address" : { "@type" : "PostalAddress", "addressCountry" : "", "addressLocality" : "Syosset", "addressRegion" : "New York", "postalCode" : "11791", "streetAddress" : "6851 Jericho Turnpike Suite 120" }, "alternateName" : "4 Thought Financial Group", "areaServed" : { "@type" : "GeoCircle", "geoMidpoint" : { "latitude" : "+40.8100713", "longitude" : "-73.5172286" }, "geoRadius" : "150 km" }, "description" : "Choosing the right business succession strategy is critical to facilitating a smooth transition and ensuring nothing falls through the cracks. 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