CSP Family Business Succession 2

Question 1

Which document formally grants a family member authority to manage business operations in the event the owner becomes incapacitated?

Accepted Answer

Durable power of attorney

Answer

A durable power of attorney remains effective upon incapacity and grants a designated agent authority to manage business and financial matters.

Question 2

In a family business context, what is the primary purpose of a 'family council'?

Accepted Answer

To provide a forum for family communication and governance decisions

Answer

A family council serves as a structured forum where family members discuss shared values, policies, and governance issues separate from business management.

Question 3

When a founder transfers business interests to children at a discount using a Family Limited Partnership (FLP), which IRS concern is most commonly triggered?

Accepted Answer

Lack of economic substance or sham transaction

Answer

The IRS may challenge FLPs if they lack genuine business purpose and appear to exist solely for tax avoidance, citing lack of economic substance.

Question 4

A sibling who works in the family business full-time is most likely to feel inequity when the succession plan treats all children:

Accepted Answer

Equally regardless of contribution

Answer

Equal inheritance regardless of contribution creates perceived inequity because active children often believe their sweat equity warrants greater compensation.

Question 5

Which succession strategy is most appropriate when no family member is willing or capable of leading the business?

Accepted Answer

Sale to a strategic third-party buyer

Answer

When no qualified family successor exists, selling to a strategic buyer is often the best option to maximize value and ensure business continuity.

(CSP) Certified Succession Planner Practice Test

(CSP) Certified Succession Planner Practice Test

CSP Family Business Succession 2