Planning for the Second Generation

Burnell E. Steinmeyer, Jr. (shareholder, Kelley, Scritsmier & Byrne, P.C., North Platte, Nebraska) and Todd D. Turner (associate) have recently published their article entitled Second-Generation Planning: The Corporate Division Alternative, Prob. & Prop., Nov./Dec. 2006, at 48.

Here is the conclusion to their article:

Business transition planning is an essential part o the lie cycle of a family business.  Determining the goals of both the first- and second-generation business owners is necessary to develop a transition plan that will meet the needs of the people involved.  In most cases, minimization of income and transfer taxes will be a primary goal of all parties.  This goal normally can be best achieved when it is set in advance and the short-term operational decisions are made with this goal in mind.  In the case of a corporate division under Code § 355, the operational decisions must reflect the need to maintain an active trade or business using the property that is to be the subject of the division.  If the activity level is not sufficiently maintained, a tax-free division is not a viable alternative, and, unless the new generation of owners can work together, substantial taxes may be incurred in dividing the business.