Legacy Decisions and Business Succession Planning

One of the major challenges of estate planning is, without a doubt, business succession planning . All businesses, whether large or small, are complex assets, which inevitably raise many special issues involving insurance, finance, taxes, and a host of other technical issues, especially when the business is being sold, gifted or otherwise transferred.

But essentially, business owners want the same things that any other client wants. They want their businesses and all their other assets to pass to their spouse, children and other heirs as efficiently as possible, and with as little delay, complications and expense as the law (and good planning) will allow.

But business owners, to a greater degree than our other clients, face difficult “legacy decisions” with regard to their overall estate planning.  A legacy decision is a decision that can only be made at the highest level, and only by the client. All of the technical skills of the attorney, the financial planner, the CPA, or other professionals on the client’s team, are only effective once the client is confident that he or she has made good legacy decisions. In business succession planning, therefore, my firm places a lot of emphasis on legacy decisions, and we help the client with this process (sometimes engaging professional consultants for this purpose), and we usually do this at the very start of the engagement.

For business succession planning, the legacy decisions cover a lot of subjects. For example, most business owners need to ask themselves the following questions regarding their legacies:

  • Do I want to sell my business while I am still alive, or pass it to my heirs upon my death?
  • Will I rely upon my business to provide me and my spouse with retirement income? And if so, how much?
  • Will I be selling and/or giving away my business to family members while I am still alive, in order to save taxes and simplify my estate? But if I do this, how do I maintain control over my business?
  • Will my key employees remain with the business after I retire or after I am deceased?
  • Do my children have the necessary training, knowledge and experience to take over my business if I retire or if I am deceased?
  • What is the fair market value of my business today? More importantly, what will most likely be the fair market value of my business at the time of my death?
  • Am I sufficiently motivated at this time to begin serious business succession planning?

The number one reason that family businesses fail to be passed on to the next generation, or must be disposed of on the basis of the liquidation value, rather than on the basis of the going-concern value, is the following: Inaction. Most inaction, in my view, is caused by business owners who end up doing what all clients do, they are not comfortable squarely facing their legacy decisions, and so they don’t do a good job making legacy decisions. We help our clients get through this decision-making process, and we make sure that they understand the technicalities of the tools they wish to use, and that they are committed to a process that will likely take several months to several years, before we “roll out the heavy guns.”

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