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By many estimates small business accounts for a major proportion of the accumulated wealth in the country and is often hailed as its economic backbone. Yet recent reports show that nearly half of all small business owners don't have a business succession plan. For small business owners succession planning is the key to transferring the family business, or its assets, to the kids. Part of this process is emotional, while other parts are financial and legal. Unfortunately, people who wait until they are near retirement to nail down these particulars find themselves, and their children, loosing a lot of money.

The emotional aspects of passing the business on to the children are challenging. Business owners must first decide who is getting the business, and in what percentages. Sometimes these kinds of decisions will be easier because of past events. One child may have chosen to work in the family business while another may have gone on to do other things. One may have spent years away but then returned home to participate in the business, while another might have never had any interest.

Things get more complicated though when more than one child is involved with the business, or want to be involved with the business. In other situations, even though there may be children who don't want to be involved with the business the business owners may still want to provide an inheritance to them. Creative succession planning will take that into consideration and potentially use other mechanisms like life insurance to bridge the gap.

So these deliberations and resulting decisions are deeply personal ones that the business owner needs to wrap up before moving forward with putting the pieces of the succession plan into place. While there are no universal guidelines to help with making these determinations some things owners may consider would include their own desires relative to inheritances, the past involvement of the children in the business, the abilities of the children, and the potential each child offers to the business.

A couple of options for the actual transaction are to give the business away, or, sell it to the children who will be taking it over.

When gifting the business there are tax implications since a married couple currently can only gift $24,000 per year as a tax-exempt gift. Couples also have a lifetime gift tax exemption of $2 million. For this reason many astute business owners will gift the business to the recipients at a time when the business's value

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