Did you hear the one about the 85-year-old who was asked what plans he’d made for continuing his family business? He began by saying: “If I die …”

Optimism is one thing. But so is reality. At some point, death or disability affects every business. That’s why it’s important for business owners to think about the inevitable. There’s less disruption and uncertainty if the owners of a family business have a succession plan in place. It can assure the survival of the business and minimize taxes for the heirs.

A will is a first step. But it should never be the sole means of transferring ownership of a family company to a surviving spouse or children, experts say. Without something such as a succession plan, trust or buy-sell agreement, which spells out the value of the business and the ownership rights of everyone involved. much of the family’s profits can be eaten away by state and federal taxes.

Keep in mind that needs and plans change over time. So family business owners should review wills and other documents annually to be sure they keep pace with changing family and business circumstances. It’s especially important to make sure the executor and others named in the document are still available and competent.

The right legal documents can protect family members who have worked and invested in the business. Otherwise, they may inherit no more than brothers or sisters who walked away from the business 20 or 30 years earlier.

The owner’s stake in the business may be the biggest asset in his or her estate. Unless the value is determined before death, the business may lose value. If no family members want to run the business, survivors need to know how much it’s worth so they can sell it.

Heirs or potential heirs outside the family may want to receive income on their investment or increase the value of the assets. Make sure any plan discusses their rights to sell their interest or wherger they can participate in management of the business, since it can affect the division of profit.

Consider the benefit of life insurance. The owner, for instance, can purchase life insurance to provide the funds selected family members may need to buy out ownership rights other family members may inherit. In cases where shares of company ownership are passed along through inheritance, life insurance can also be used to pay estate taxes.

“Key man” life insurance compensates a company for the dollar value loss of the person’s leadership and management expertise. It can provide additional collateral for corporate debt, fund the cost of hiring an interim replacement and cover other transition contingencies.

Strategies to Get Kids Involved

• Don’t pressure kids to enter the business. Give them freedom to make a choice.
• Children may get experience that will benefit the company by working outside the business early in their careers.
• Compensate fairly. Whether you hire your child as a teen or after he receives his MBA, offer a salary commensurate with his responsibilities and abilities.
• Give him the authority he needs to handle his responsibilities. It’s frustrating for a child to feel he has to ask Mom and Dad for permission to do his job.
• Treat him as well as other employees. Don’t expect your child to do things you’d never ask other employees to do just because he’s part of the family.