Contents
Estate Planning Basics
How Estate Taxes Work
Wills and Estate Planning
How to Write a Will
Planning Directives
Probate
Estate Planning and Trusts
Types of Trusts
Life Insurance
Charitable Giving
General Gifting
Long-Term Care Planning
Business Succession Planning
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Business Succession Planning
If a person is a small business owner, the core asset he or she holds is often the business itself. However, many small business owners fail to pass on their business to their heirs. Instead, the business shuts down due to the significant costs that running a business requires. These include:
- Everyday business operations costs
- Debts to creditors, including monthly bills
- Mortgage and bank loan payments
The best way to keep your business running and thriving long after you’re gone is to develop a funded succession plan. A succession plan is a predetermined strategy that guides the fate and management of a business in the event that its owners or principals die.
Basic Considerations of Planning
The details of business succession planning should be sorted out among you, your partners, your family, and your attorney. Though every situation differs, basic business succession planning breaks down into these five steps:
- Prepare and sign a shareholders’ agreement that specifies how the breakup, sale, or transfer of the business will be handled.
- Prepare and sign a buy-sell agreement, a written plan for valuing each partner’s business interest and ensuring that a plan exists for inheriting, transferring, and/or buying out each owner’s business interest.
- Establish a regular valuation plan specifying when each owner’s business interest will be evaluated.
- Get all spouses to sign off on the buy-sell agreement and valuation plan.
- Make sure funds exist or can be summoned to buy out any departing or deceased owner’s interest. These funds usually come from business- or owner-purchased life insurance policies held by each owner.
Consult tax professionals, attorneys, and insurance agents specializing in this area of estate planning to establish a plan that ensures that your business never faces a liquidity crunch following the death of an owner.
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