How To Handle Business Succession Planning With Your Estate Plan
A comprehensive estate plan establishes what will happen to a person’s assets, who will take care of the person’s children, and how other important affairs will be handled when he or she dies or becomes incapacitated. Estate plans are highly personal, so the right plan depends on the unique needs of the estate owner, or grantor. Estate planning is generally complicated, but it can be even more so for business owners, as their estate plans also include business succession planning. A strong business succession plan can ensure that your company will be placed in the right hands and set up for continued success after your death or retirement. The Texas and Florida estate planning lawyer and her team at Fleurinord Law PLLC, help business owners incorporate business succession planning into their estate plans. Consider calling (888) 904-2297 to schedule a consultation today.
What Is Business Succession Planning?
A business succession plan establishes how a business will be owned and managed after the owner dies, becomes incapacitated, or retires. The plan should dictate how ownership will be transferred and how various financial aspects of the business will be handled. Business succession planning is a key component of estate planning for all business owners. Any business owner should ensure that his or her estate plan establishes a way for the business to transfer easily and for the business to continue succeeding under new ownership.
Why Is Business Succession Planning Important?
Business succession planning is a crucial part of estate planning for business owners. A well-structured succession plan can be used to ensure that the business is transferred efficiently and according to the wishes of the owner when he or she retires, dies, or becomes incapacitated. Business owners who want their companies to stay in the family can also do so by including the business in their estate plan with provisions that establish who will take control of the company, the roles that various people will fill, and all other organizational aspects of the company.
In addition to being beneficial for business owners and their families, business succession planning is important for everyone involved with the company. The succession plan can include terms regarding management and operations and provide employees with a sense of continuity after the owner is no longer involved with the company.
When Do You Need a Business Succession Plan?
Virtually all business owners need a business succession plan. Even young and healthy business owners will want to be prepared for the unexpected by having a plan in place that allows the business to continue operating if they become incapacitated or pass away. The Small Business Administration recommends developing a succession plan early. The exception might be sole proprietors or freelancers who run a one-person business and have no plans to keep the business running when they are no longer involved.
What Should Be Included in a Business Succession Plan?
The details of a business succession plan will vary depending on the needs of the owner, but most plans have the same general set of components. The business and estate planning lawyer at Fleurinord Law PLLC, helps with business succession planning to fit a business owner’s unique needs.
Ownership Transfer
Business owners have a couple of options for transferring company ownership. If the owner wants to keep the company in his or her family, the business can be included in an estate plan with named beneficiaries. The company could either be left to one new owner, such as a spouse or a child, or be divided among multiple family members.
Alternatively, the business owner has the option to sell the business in exchange for money or other assets. These funds or assets can then be included as part of the estate plan. For example, the estate plan could include provisions for how the business should be sold when the owner passes away and how the proceeds will be distributed among beneficiaries. A buy-sell agreement can be added to the succession plan, which would trigger an automatic sale upon the death of the owner.
Management Transfer
This part of a business succession plan establishes who will be in charge of management responsibilities for the day-to-day operations of the company after it is transferred. These responsibilities can be transferred to family members through the estate plan or to current employees who the business owner believes have strong management skills. This part of the plan should also consider the financial aspects of the transfer and a plan for transitioning to new management. According to the American Bar Association, the succession plan for a business should include notes about client information, file storage, liability payments, and all relevant passwords.
Financial Planning
The transfer of a business typically involves a variety of financial implications, all of which should be accounted for in the succession plan. Some of the key financial aspects to consider include:
- Tax implications — The value of the business may increase between the time the plan is drafted and the time of the owner’s death, which could add to the total of the taxable estate
- Business valuation — If the owner has plans to sell the business upon his or her death or retirement, a dollar value will need to be assigned to it. The business can either be appraised by a certified public accountant (CPA) or valued through an agreement between all business partners
- Life insurance policies — A life insurance policy can be used to protect the business if the owner unexpectedly dies or becomes incapacitated
Discuss Your Succession Plan With Our Estate Planning Lawyer Today
A comprehensive estate plan should provide detailed guidelines for what will happen to all of the estate owner’s assets. For business owners, the estate plan should also include a business succession plan that names who will take over ownership of the company, who will be given management duties, guidelines for selling the business, and all other relevant matters. If you are ready for help incorporating business succession planning into your estate plan, consider contacting our experienced estate planning lawyer at Fleurinord Law PLLC, by calling (888) 904-2297 today to learn more.