COVENANT BUSINESS PLANNING SOLUTIONS

Leaving Your Wealth to Your Children

The primary decision any parent makes when transferring wealth to children is not how to accomplish the transfer, (that’s the estate planning attorney’s job) but rather how much wealth to transfer to children. 
 
To answer that question, business owners must revisit their financial exit objective; namely, how much wealth you wish to have after you exit your business? The amount of wealth owners wish to leave their children usually (but not always) depends on how much the owners wish to keep after they exit their businesses. 
 
As a general rule, we discourage parents from making significant gifts to children until their own financial security is assured. Only after the parents’ needs are met do we ask how much is enough - or too much - for the kids. 
 
The first step in creating a comprehensive Exit Plan is for owners to determine their objectives. Without goals, there can be no plan and owners are rarely able to leave their businesses on their terms. 
 
As a quick review, the three exit objectives that every owner must fix are best phrased as questions: 
1. How much longer do I want to work in the business? 
2. What is the annual after-tax income I want (in today’s dollars) during retirement? 
3. Who do I want to transfer the business to? 
The answer to the second question not only establishes the owner’s personal financial goals but also provides the takeoff point for how much money the owner can afford to leave to children. 
Most owners draw upon the expertise of their financial and investment planners or exit planning advisors to help answer that question. 
In our next blog, we’ll delve into the question of how much wealth is appropriate to leave to your children.