What is business succession planning and how does it enhance your own success and that of your business? What happens to your business after you retire? Do you wish for your company to continue after your gone? Succession planning is an estate planning strategy to ensure your business successfully passes to the next owner or owners if you become incapacitated or upon your ultimate passing. It protects the smooth operations of your company while ensuring the reins of power are passed quickly and cost-effectively without triggering unnecessary tax implications. Business succession planning establishes a value for your ownership interest in advance that eliminates the need for a valuation or interruption of business (or worse, litigation) upon the passing of its owner or owners. Effective business succession planning prevents cash flow crises and ensures the company has the resources to smoothly transition upon the loss of its owner(s).
Sure, your company could simply be sold in its entirety. Is this your intention? Or is there an heir, beneficiary or specific person you believe should be in control of your business if something were to happen to you? Business succession planning is accomplished through the use of a revocable trust which contains your specific instructions for the transition of power and the circumstances when it is to occur.
If there are multiple owners within the business it is important to ensure the loss of one of the partners doesn’t cripple the company. Life insurance is often employed as part of business succession planning to provide liquidity and additional options upon the passing of one of the partners. You may choose to deploy a “cross-purchase” agreement which establishes the value of each ownership share in advance. The “partners” or owners in the business take out insurance policies on each other where the “owner” of the policy and the “beneficiary” of the policy is the same (individual or group). The proceeds of the policy are used to buy out the interest of a partner who dies or becomes incapacitated. This protects the families and beneficiaries of each individual owner while preserving the viability of the business itself.
Ensure your “success” is built into your succession. Learn more about business succession planning and estate planning as well as the tax implications of each option by contacting the experienced estate planning, tax and business attorneys at Allen Barron for a free consultation at 866-631-3470.