Many business owners do not realize that business succession planning is a vital element that should be included in the estate planning process. Not only does it protect your family’s interests if you pass away, it can help your business continue to grow and thrive after you retire or if you become incapacitated.
Drafting a business succession plan before your departure can keep your business on track and make the transition much easier for partners, managers, employees and customers who depend on your business for financial stability.
How to Create a Business Succession Plan
Every situation is different, and experienced estate planning lawyers can advise you on the various factors to consider when creating a business succession plan; and make sure that any partners, co-owners or investors are on board to avoid problems down the road.
Tackling your personal retirement planning and estate planning goes hand in hand with creating a business succession plan. Taking care of retirement planning can help you decide when to retire and determine how much you will need. Estate planning not only outlines your wishes and intent, but can help to preserve your wealth for future generations.
Create a written emergency plan that names a person or persons your spouse or children should consult in the event of your incapacitation or passing. Include specifics about the steps partners, key employees or advisors are supposed to take in these circumstances.
Review and update your shareholder and/or partnership agreements. This becomes particularly important as the shareholder pool changes or if a business is passed down to family members.
Create formal governance processes. Establishing a board of directors or advisors, developing an employment policy, and reviewing strategies for growth and compensation will help the transition process run more smoothly.
Provide training for the next generation. This gives your employees and any family members who work with you an opportunity to learn about how to run the business and the leadership and dedication it takes for continued success.
Tax Considerations and Probate
It is also important to recognize that the value of your business may grow or diminish between the time you plan your estate and when you retire or pass away. Keeping your succession plan up-to-date can ensure that the valuation of the business is accurate.
Another thing to take into consideration is the probate process your family will have to go through after your death. Skilled wills and trusts lawyers can help you create certain types of trusts that can allow some of your assets and business interests to pass outside of your taxable estate.
If you want to incorporate tax minimization into your estate plan, Grantor Retained Income Trusts (GRITs), Grantor Retained Annuity Trusts (GRATs), and Grantor Retained Unitrusts (GRUTs) can be very effective estate planning tools. These types of trusts can be complex, so working with estate planning or business attorneys who are experienced in drafting irrevocable trusts is a must.
Consulting with a knowledgeable Chester County estate planning attorney can help you effectively pass on your business and give you and your family peace of mind, knowing that your legacy will continue long after you’re gone.