Only about ten percent of business owners have a business succession plan. Another thirty percent have only an informal plan. Thus, when it comes to estate planning, too often, owners of small businesses fail to plan for what happens to the business on the owner’s death.
Also problematic, though, is when a plan is made within the business but it does not take into account the plans made for the rest of one’s estate. Working with an attorney or a team can help avoid some of these potential problems.
Business Succession with a Family Legacy
Many small business owners would like to leave that business to family members, carrying on what is seen as a family business. But not all members of a family may be suited to run the business. Some might not be interested in being involved. Even if the family will not run the business, the income can be used to provide security for a surviving spouse and children.
Your estate planning attorney can help you understand your options while taking the above considerations into account. Perhaps an insurance policy is needed to equalize inheritances across a number of children. Or more detailed work could be needed to identify roles each family member will take in the future, some hands-on and some behind-the-scenes. Key here, though, is that your estate planning attorney needs a clear understanding of your entire estate plan. This can help make sure what is happening with your business does not get in the way with the rest of your plan.
Competing Issues in Your Succession Plan
Just as family members will have different needs and interests, so too might partners in the business, management of the business, and employees of the business. If the business has other partners, this could set up a recipe for disaster when forcing parties into business with each other who do not have the same business acuity or interests. Management styles can vary greatly from one generation to the next too. Planning in advance can help make sure the employees, often the backbone of the business, don’t feel looked over.
Building Your Business Succession Team
For privately owned or closely held small businesses, often an estate planning attorney can help with all of the areas involved in succession planning. One option is assigning the shares or business interests to a revocable living trust. This can help avoid issues of probate after the original owner dies. Using a trust can also give a trustee flexibility to make determinations when the time comes for the business to pass to the next generation.
Some businesses, though, will need more layered planning such as buy-sell agreements, loans, operating agreement language, and more. In these cases, it is often important to use a team of professionals—your estate planning attorney, your business attorney, your CPA, and insurance professionals—to work together to help you achieve your goals. As you plan for your business succession on your retirement too, a financial planner rounds out your team to help you work toward that retirement goal. Estate planning attorneys typically have passions in being collaborators. This means we work with others on your team for your plan, with your goals in mind.
Planning for Your Business’s Future
As you plan out the next month (or next week) with your next to-do list, it’s as good a time as any to include business succession planning on that list. Whether your goals are to sell your business outright, leave it to some or all of your family, or hold the business ownership so its income provides financial support to your family, all of this should be part of your overall estate plan.