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The basics:

• As baby boomers reach retirement age, succession planning is critical
• Only 30% of family firms survive to the second generation
• Tools like trusts, LLCs and partnerships help ease transition

As the “silver tsunami” peaks in 2025, a significant wave of New Jersey’s baby boomer business owners will reach retirement age, prompting critical succession planning decisions. Will their children take over the family business? Will they choose to sell, relocate, or transfer their assets? With so much uncertainty around the economy, tax changes and the regulatory landscape, planning for the future can be even more daunting.

New Jersey is home to a high concentration of small businesses, making the impending generational shift especially significant for business owners, multi-generational families and the broader tri-state economy. The state’s real estate-heavy business landscape may also experience ripple effects across both residential and commercial markets. According to the U.S. Small Business Administration New Jersey has more than 953,000 small businesses, accounting for 99.6% of all businesses in the state, highlighting the potential scale of the impact from the “silver tsunami.”

Many business owners are counting on their children to take the reins when they are ready to retire to preserve their legacy and wealth. In reality, only around 30% of family businesses survive to the second generation, despite 72% wanting to keep the business in the family.

In the wealth management business, we aim to provide the best counsel to clients when they are faced with big decisions about their future and the future of their business. We recently spoke to a New Jersey business owner with several kids in college and asked, “Are your kids taking over the business when they graduate?” His reply was, “I sure hope so.” He admitted to not having the tough conversation with his immediate family and instead was operating on the assumption that his children would be ready and willing to take over the business when the time came. Wealth advisors can help facilitate these often-difficult discussions, bringing family members to the table to gain a better understanding of all options for preserving that legacy business.

A matter of trust

As a business owner looking to retire, customizing a succession plan is crucial. Tools like trusts, which provides control and management by a trustee; family limited partnerships, a family structure where two or more family members jointly own and manage a business; and limited liability companies offer additional flexibility and control. These can help with the transition if the family member is inexperienced or not as capable as another sibling.

These structures can be very helpful especially when it comes to families with multiple children, with one in the business and actively involved and others who are not. Clients often wrestle with how to treat all children “equally” without granting an equal amount of control over the business. To distribute assets fairly when one sibling is set to lead, consider giving nonvoting stock to less-involved family members to help avoid conflicts. Another option is a limited liability company, which provides fixed business shares to each sibling, and the control can remain with the sibling in the business. Alternatively, place assets in a trust managed by an impartial trustee to prevent any potential misuse.

Talking with family members about business succession plans is just one hurdle. What if the next generation has decided to follow a new career path, one that doesn’t include running the family business? Business owners need to understand all available options, especially if they are thinking of retiring in the next few years.

Aging family businesses present valuable opportunities for investors, especially in the tri-state area, where small business ownership is prevalent. Owners may choose to sell their business entirely for a lump sum or sell a portion of their ownership to generate wealth while retaining an investment stake. This approach also opens the door for local investors to step in and acquire established businesses in their communities.

Given the current high valuations, certain industries may present appealing investment opportunities. As a result, a significant amount of private equity cash is being allocated toward acquiring valuable businesses – even on a local level.

If the company has multiple owners, it’s important to take into consideration how succession, retirement and estate planning could be affected. Involving financial and legal advisors early in the discussion can help to collectively develop a tailored solution for unique and specific circumstances.

Navigating the complexities of family business succession and retirement planning requires careful consideration and proactive measures. Business owners must engage in open and honest conversations with their family members to understand their aspirations and readiness to take over the business. Exploring alternative options, such as selling the business or involving local investors, can provide viable solutions when family succession is not feasible.

By involving financial and legal advisors early on in the process, business owners can develop tailored solutions that safeguard their legacy and wealth while accommodating the unique needs of their family and business.

With thoughtful planning and strategic decision-making, business owners can confidently approach retirement, knowing that their hard-earned legacy will be preserved and their future secured, helping to infuse New Jersey’s thriving small business network.

This is Part I of a two-part series on the silver tsunami. Part II will highlight opportunities available for New Jersey’s next generation of business owners.

Don DiCarlo is president of Wilmington Trust Emerald Family Office & Advisory and Jim O’Hoppe is NJ & NY regional president & executive vice president at Wilmington Trust.