Yes, knowing the tax implications can save millions of dollars, and working through the various licensing requirements that need to be met when the business changes hands is also crucial. But none of that really matters if no one is speaking to each other when all is said and done.
The most important thing to understand about wineries, estate planning, and preparing the way for a family succession? “It’s all about transparency and communication,” says Lauren A. Galbraith, an attorney for the San Francisco firm of Farella Braun + Martel who works with families and businesses who need estate planning . “And that goes in both directions for the visions of what’s next—for both the owners and the family members.”
Talk to attorneys who have worked with families, estate planning, and preparing for the next generation, and that almost always becomes a sticking point. In fact, says Galbraith, she has known attorneys to bring family counselors into the mix. That way, even those who may be reluctant to speak out (maybe they don’t want to hurt Dad’s feelings) will feel more comfortable about the process.
Because, says Jamie Watson, a partner with GVM Law in Napa who is certified in estate planning: “You want a thoughtful exit, where everyone does talk to each other at the end of it. If the winery has been in the family for 50 years, the owner may not have a clear understanding of what the rest of the family wants to do.”
Considering the next generation—or even the ones after that—they may not want to keep said winery or even be qualified to run it if they do want to keep it. The estate planning process must give the younger family members a chance to discuss if and why they want to inherit the business; and the older generation just can’t assume they’ll want to—or be good at it.
“The key to having success is coming from parents [who] are still alive,” says attorney Mary P. O’Reilly, a partner and co-chair of the Trusts & Estates Practice at Meltzer, Lippe, Goldstein & Breitstone in Mineola, N.Y. “It’s important that Mom and Dad, as business owners, address and acknowledge the views of their children and explain the reasons behind decisions.
And it may be even more difficult, say attorneys and consultants, to get a handle on whether the younger generation is up to the task—and if the older generation is even aware that they need to consider that.
Says Patrick Fallon, COO and Managing Director of the CSG Partners consultancy in New York City: “Is the next generation of the family capable of running the business? You have an asset that’s going to lose value and liquidity unless they have the skills, desire, and interest to run the business.”
So, once those conversations have taken place, know these four things about planning for a family succession:
• Corporate-ize the business, says Galbraith. That includes making sure all the paperwork is up to date, that all the board meetings that are required to be held have been held, and that all the company officers know they’re company officers. It’s all too easy in a family business, especially when one person does most of the work, to skip board meetings, to forget to elect officers, and to neglect the paperwork that’s legally mandated by the company’s corporate structure.
• Be prepared to confront the winery’s tax situation—as unpleasant as it may be. “You’d be surprised how many people, who’ve owned a winery for years, don’t appreciate how much the value of the land has increased,” says Watson. This means estate taxes and property taxes, the implications of which can vary from state to state, Regardless, there are ways to minimize the amount due with sufficient planning.
• Make sure state and federal licenses don’t get lost in the transition, says attorney Kimberly Frost, a partner with Martin, Frost, and Hill in Austin, Texas. Again, the laws vary from state to state, but the worst thing to do is to assume that the new owners can keep the licenses just because the business stayed in the family. That’s rarely the case.
• And, finally, don’t wait until last minute to start planning; it’s something that should start when the idea of succession is still an idea. Planning can take years, so starting just six months beforehand almost certainly won’t be enough time, says Watson. It’s just too complicated a process.
Jeff Siegel is an award-winning wine writer, as well as the co-founder and former president of Drink Local Wine, the first locavore wine movement. He has taught wine, beer, spirits, and beverage management at El Centro College and the Cordon Bleu in Dallas. He has written seven books, including “The Wine Curmudgeon’s Guide to Cheap Wine.”