Crucial Considerations for Business Succession Planning
Jul 21 2021
You’ve worked hard to build, develop and grow your family-owned business – but without a strategic plan in place for how to pass your business operations and holdings on to the next generation, you might be leaving the future of your enterprise to the default provisions of state law
Creating a strategic plan for transitioning your business is key to ensuring your business, financial, family and personal affairs are navigated in tandem with your overall goals. What you want to avoid is a forced sale of your business holdings after your death due to cost-prohibitive estate and/or income tax expenses, illiquidity, post-death disposition fees, family disharmony or other potential challenges
The estate-planning process should include a business succession plan to direct how estate taxes and post-death expenses are paid. If there are no guidance directives in place for payment of taxes and various expenses, business assets may have to be sold, or encumbered with debt, to cover the taxes and post-death administration expenses.
What’s so difficult in those situations is that substantial business assets may have to be borrowed against or sold on a forced-timing basis, perhaps during undesirable market conditions, so it might be impossible to obtain even fair market value for business holdings and assets. Some tax laws permit certain qualified estates (comprised of closely held business interests) to pay estate taxes over a 10-year installment time period, but you certainly don’t want to roll the dice and hope your business holdings and estate qualify for favorable tax treatment options.
Planning ahead is key, and succession planning can be a streamlined process. Bell’s wealth and fiduciary team will work with you as a fiduciary liaison with your legal and tax advisors to build an optimum plan for effective transition and succession of your business enterprise, paying taxes and post-death administration expenses.
It is also important to review your documents periodically and update with revisions as changes inevitably unfold over the course of time. Problems could arise from estate planning documents that are woefully inconsistent with your current circumstances, desires, concerns or estate tax laws, which have changed drastically over the last two decades.
I have been in the estate-planning business for several years and have seen many people who have achieved great business success, but they didn’t take the time to create effective estate and business succession plans that would have carried out their wishes.
Some business owners avoid making an estate plan because of complicated family circumstances, including:
- Blended family trees
- Poor money management
However, complicated family dynamics make it even more important to have a strategic business succession and estate plan with provisions in place to help minimize difficult and potential heightened conflict situations.
Always look to the future – the future management and ownership of your successful family-owned business, as well as flexibility for addressing tax consequences. A current business succession plan with guidance from your legal and tax advisors will significantly serve to help ensure a smooth business transition consistent with your wishes and objectives.
Mary Locken, JD
SVP/Wealth & Fiduciary Division Manager
Wealth management products are not FDIC insured, have no bank guarantee, may lose value, are not a deposit and are not insured by any federal government agency.
This article has been written for general information. It is not intended, nor may it be relied upon, as tax or legal advice with respect to any matter. This article also cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by the Internal Revenue Service or other taxing authority.