If you have a family business or started a company that you would like to keep in the family after you pass away, you need to create a succession plan. Even if you wish to sell that business, speaking with an estate planning attorney about your business’s future is critical – and you can incorporate your business succession plan into your estate plan.
Why Plainview Business Owners Need an Estate Plan and a Succession Plan
You might assume that you have an estate plan; therefore, you do not need a succession plan. What you may not realize is that all assets, including private businesses, do go through probate – unless you have named beneficiaries through a trust. Certain trusts can allow your assets to pass outside of the taxable estate, including your business.
To take advantage of those trusts, you need an attorney to help set up a business succession plan alongside your traditional estate plan. This way you protect your business, investment, and your loved ones at the same time.
The Consequences of Not Planning – and Not Including Both Options
Without considering a complete plan that incorporates personal and professional assets, your family may suffer from severe financial and emotional consequences.
The Consequences of No Business Succession Plan
- No Clear Direction – Who will lead the business? Who takes over and manages? Without a succession plan in place, there is no clear direction for how the company will continue to operate (or if it should operate) after your death.
- Creates a Fear of Uncertainty – A business relies on its employees. But when leadership is mismanaged, power struggles occur over who should run the business, and the company is left picking up the pieces. Employees may leave for a more transparent future than stay with a company that is full of uncertainty. After all, employees want personal job security.
- Family Disagreements – Family members left to make decisions for the business may go through disagreements, and decisions like these can tear families apart.
- Loss of Value – When the key person running the company dies, surviving shareholders may go to sell the business and realize that there is a loss in value because of that person’s death.
The Consequences of No Estate Plan
- Tax Liability – Without an estate plan drawing a line between professional and personal income and assets, a family may experience estate tax liability that they had not planned on encountering.
- Probate Court – Family members will have to endure probate court fees and time lost for private assets as well as the business.
- Delayed Distribution – Without an estate plan, the estate waits in line for its turn in probate, which means there is a delay in the distribution of assets. It may take months to years for the estate to resolve, depending on the complexity of that estate.
- Litigation Costs – Family members may have unexpected legal costs for disagreements amongst each other.
The Tax Considerations for a Budding Business
Between the time you make an estate plan and the time you pass away, your business may see significant growth. That means the amount of money your business generates can increase the value of your estate – and with that value comes the issue of estate taxes.
How Does the Business Succession Plan Differ from an Estate Plan?
Your business succession plan focuses strictly on the business and assets associated with that business.
At a bare minimum, your succession plan needs to focus on the transfer of management of the business or the ownership of the business entirely.
The procession of management succession typically involves:
- Developing, training, and supporting successors
- Delegating responsibility and authorities to successors
- Bringing in outside advisors to help in the process
- Maximizing employee retention by creating a smooth transition and proper planning
The process of ownership succession might involve:
- A plan that coordinates the person who will own the business after death and who will manage the business (if they are two separate people).
- A plan that considers the best interest of both sides.
- A plan that involves moving the business over before the current owner’s death – giving that past owner a chance to meet with, cultivate, and guide successors.
Can You Make a Business Succession Plan without an Attorney?
A business succession plan protects your business, loved ones, and any employees you might have. While you know this, you should also know the importance of hiring a professional to draft that protection.
Templates online rarely address the complexity of each business, and every company is unique in what they need for succession to work. Succession plans account for various circumstances, including how partners will handle the business, what happens if legal agreements are violated, and how the business moves forward if you were to pass away unexpectedly.
These legal hurdles are serious. Without the right plan in place, your business could fail.
An attorney addresses any unique legal concerns your business might have, and an attorney will address all state and federal issues that could arise.
Business planning requires attention to detail and vast knowledge of employment, business, and estate laws. For this reason alone, a business owner should enlist the help of an attorney in their succession plan. An attorney will consult with tax experts to assist them in drafting a plan. Also, if a legal dispute does arise about your business later, your estate attorney will be able to defend your plan and your estate in court after your passing.
Consult with a Local Attorney that Helps Your Business Pass Safely
Attorney Andrew M. Lamkin, P.C., can help with not only your estate plan but your succession plan too. By going over your business’s unique needs along with your personal concerns for your loved ones, I will help you create a succession plan combined with a substantial estate plan that protects your family for years after your death.
To get started, schedule a consultation with my office at 516-605-0625. You can also schedule your free case evaluation appointment online.