If you are a business owner, you are undoubtedly focused on daily operations and the tasks involved with making the company increasingly successful.
What happens to the business when it no longer has your guiding hand? Perhaps now is the time to consider developing a succession plan to add to your estate planning tools.
The buy-sell agreement
If you have co-owners, you can simply create a buy-sell agreement. This is an agreement stating that upon your death, the other owners will automatically purchase your interest. This will prevent your spouse or other family members from unintentionally becoming owners of the business. To provide the necessary funds, you can purchase a life insurance policy or create an irrevocable life insurance trust.
Your succession plan
No matter the size of your business, a succession plan might include:
• The development and training of your successors
• Delegation of responsibility to successors
• Equitable compensation planning to retain key employees
• Coordination between owners and managers
You can also designate a time for the transfer of the business during your lifetime, which would allow you to work with your successors.
Remember that the value of your business may increase between the time you establish your estate plan and the time you die. The value of the business at the date of your death will become part of your taxable estate. You might consider establishing a grantor retained annuity trust or a family limited partnership that will achieve the estate tax benefits you want. Your attorney can explain these and other options. With legal guidance, you can create a succession plan structured on the best interests of the business to ensure that your company will undergo a systematic ownership and management transfer whether to co-owners or to family.