Legacy on the Payroll: Why Hiring Your Kids Might Be the Smartest Move for Your Business and Family
In the next decade, we’ll witness the largest transfer of private wealth in American history. Over $84 trillion is expected to pass from baby boomers to their heirs, with nearly $16 trillion in business assets in the mix (Cerulli Associates, 2022). For small business owners nearing retirement, this presents a massive opportunity and challenge: how do you pass on your life’s work and your values?
For some, the answer may already be sitting at the dinner table.
A growing number of entrepreneurs are hiring their children into the family business. Not just for summer help or social media duties, but as a long-term wealth and succession planning strategy. According to Gusto’s recent study, 43% of small business owners hired their family members as W2 employees. Gusto also reports that 40% of entrepreneurs started their businesses with the goal of creating an asset to pass on to their children. It’s a move that combines tax efficiency, legacy building, and some meaningful time together.
But is it the right strategy for your business?
Let’s explore the benefits, and some honest challenges, of putting your kids on payroll.
The Financial Upside: More Than Just a Deduction
Hiring your children offers more than sentimental value. When structured properly, it can be a powerful wealth transfer strategy:
1. Immediate Tax Benefits
If your business is a sole proprietorship or an LLC taxed as one, you can pay your child up to the standard deduction amount($15,000 in 2025) and neither of you owe federal income tax on that wage (IRS.gov). It’s a legitimate business expense for you and tax-free income for them.
2. Fund Their Future—With Pre-Tax Dollars
Your child can use their earnings to:
Contribute up to $7,000 into a Roth IRA (2025 limit) if they’re under age 50
Save for college, a first car, or even build a down payment fund for a home
That’s the difference between giving your child $20 and giving them a financial foundation.
3. Build a Real Work & Earnings History
By working in your business, they establish a resume, earnings history, and future borrowing capacity. This creates the financial track record they’ll need if they ever want to buy into the business down the road or strike out on their own.
Legacy in Action: My Family’s Story
This topic hits close to home. I’ve worked in my father’s business ever since it started in 2001. I remember riding shotgun on long drives to client sites and tuning speakers in our living room as a kid. Later, I joined his installation team in college—mostly for beer money and food runs—but I learned firsthand how hard he worked and how much he cared.
Today, I serve as the CFO and efficiency specialist for that same business. The memories I made with him aren’t just sentimental—they shaped my work ethic and sharpened my instincts.
Now, my wife and I dream about the day our kids will join us. We joke about which one will be the financial planner and which will be the attorney. That’s nepotism done right and done with intention.
Succession Planning in Real Time
Beyond short-term tax perks, hiring your child prepares them for future leadership:
They gain an insider view of how the business operates
You can mentor them directly and shape their decision-making
You’ll gradually transition client relationships, processes, and institutional knowledge—on your terms
This approach also opens the door to structured buyouts, discounted gifting, or share transfers over time, reducing your taxable estate and giving your kids real ownership.
Pro Tip: Compensating your child for legitimate work can help justify future equity transfers under IRS scrutiny. Especially if part of a phased business succession plan.
But Let’s Be Honest: It’s Not All Sunshine
Family business comes with real complexity. Here are some of the pitfalls to navigate:
1. Not All Kids Want In
One child may be all-in on the business. Another may dream of grad school, tech startups, or world travel. It’s not failure, it’s reality.
That’s why it’s critical to:
Use trusts or life insurance to equalize inheritance if only one child takes over the business
Avoid resentment or favoritism by setting expectations early and documenting your intentions
2. Your Business Comes to the Dinner Table
Once your child joins the team, it’s harder to clock out. “Family dinner” can turn into an impromptu staff meeting. Boundaries matter.
Create:
Clear job descriptions
Designated “non-work” family times
Outside advisors or coaches to help keep emotions in check
3. They’ll Never Know What You Risked
Your child didn’t sign the first lease, max out credit cards, or face sleepless nights in startup mode. You can’t transfer that context but you can teach them to respect it.
Consider family business counseling or coaching to help your child understand the deeper values behind your decisions. It’s not just about operations. It’s about ownership—emotionally and legally.
When Nepotism Is Intentional, It’s Powerful
Nepotism gets a bad rap. But when structured thoughtfully and driven by mentorship and merit, it’s not favoritism, it’s stewardship.
Hiring your children gives you a way to:
Transfer knowledge and income gradually
Keep wealth in the family without triggering gift taxes
Create shared purpose and stronger family bonds
Leave not just a business but a legacy
And if your kids decide the family business isn’t their path? That’s okay too. The skills and financial habits they build along the way are a gift in themselves.
Want to Explore a Family Succession Plan?
If you’re thinking about selling your business or passing it down to the next generation, hiring your child could be a first step or just one of many.
At Integritas Financial, we help business owners like you craft personalized exit and legacy strategies that align your business goals with your family’s future. I’m happy to walk you through the possibilities.
Schedule a Call
Learn More at if-money.com
Want to learn more?
Check out Gusto’s full analysis on this trend: SMBs Are Hiring Their Kids—Here’s Why
Final Thought
The business you’ve built can provide more than retirement income. It can provide a foundation for your family’s future. Whether you hire your kids, sell to a third party, or plan for something in between, the key is starting early and planning wisely.
You’ve built the business now let’s build your legacy—together.
Our Fiduciary Mission:
At Integritas Financial, we specialize in helping small business owners navigate the complexities of their financial lives, providing fee-only financial planning services with a fiduciary responsibility. Our mission is to serve as your trusted partner, offering personalized guidance that aligns with your unique goals and the demands of running a business.
We work closely with business owners to address critical financial areas, including business exit strategies, tax planning, retirement planning, asset protection, estate planning, and coordinating with your team of professional advisors. Whether you’re preparing for a business sale, planning for succession, or balancing personal and professional financial priorities, we help you build a comprehensive strategy tailored to your needs.
At Integritas, your financial success is at the heart of everything we do. As a fiduciary firm, we are committed to acting in your best interests, providing transparent advice without the pressure of commissions or product sales. We believe in empowering you to make informed decisions by simplifying complex financial matters and delivering solutions designed to support your long-term prosperity.
Whether you’re in the early stages of growing your business or preparing for a major transition, Integritas Financial is here to help you manage the intersection of business and personal finance with confidence. Let us partner with you to create a roadmap for your success, so you can focus on what you do best—running your business.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
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