Succession isn’t just about the family business

Most of us think succession is just about the family business. That’s hardly a surprise – after all, succession in family businesses is a frequent focus of this blog. But succession can – and indeed should – also be about families’ assets outside their businesses, such as equity, bond and real estate investments.

There are various ways to help with the succession of assets. One is to consider a family limited partnership, which can hold investment assets outside the family business in an effective and an efficient way.

How do family limited partnerships work and how are they set up?

Let’s imagine, for instance, a family where the parents have all the wealth and where they want to pass it on to the next generation. In the UK, a family limited partnership can help with tax planning when the partnership is set up at least seven years before the parents die. If the parents survive seven years or more there’s no inheritance tax to pay.

Within the partnership structure, the parents can also keep control of the investments, which helps not just with the practical side of succession for the assets, but also the emotional side. Parents – the asset owners – can establish a partnership with themselves as the general partners.

This means they run the partnership. The members of the next generation are involved as limited partners, but have no control over the investments. They are passive investors, receiving income and gains. They benefit financially, but do not take part in the decisions of the partnership until they become the general partners.

Such a structure can help to offset (often emotional) conflict, which can arise from competition between those in the next generation for access to their parents’ investment assets. It lays out the rules of engagement between multiple generations when it comes to the families’ assets outside the business.

So, don’t think succession is just about the family business. It needs to encompass all the family’s assets – or at least more assets than just the business.

Carolyn Steppler, Partner, Private client tax services, EY

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