Succession planning is essentially estate planning for businesses and an essential tool to use in protecting your business interest as well as passing it to family members or business partners upon your death. A succession plan dictates what happens when principle owners pass away. Succession planning is also very important in family businesses for passing business interests down to family members. If there is no Succession Plan, the business and all the time and effort put into it may be lost.
The three major benefits to succession planning for businesses are:
- Succession planning allows for assurance of an agreeable price for a deceased partner’s share.
- Succession planning allows for the ability to buy the deceased member’s share quickly and with no liquidity with policy benefits.
- Succession planning allows for a timely settlement of a deceased partner’s share of the business with minimal effect on a business’s operation.
One common strategy for succession planning is purchasing life insurance for each of the business owners (whether through the business or personally) and naming the business or another owner as a beneficiary.
In that case, the proceeds of the insurance, in the event of a death, go to purchasing of the deceased owner’s interest. This avoids messy probate claims and auction – allowing the business to function uninterrupted.
Another great strategy is to make sure your operating agreements are bullet proof and dictate exactly what happens when an owner or member of the business passes away. This way, there is no room for interpretation as to what happens to the business. Also, make sure your operating agreements state that the business will not dissolve upon a member dying and expressly state an alternative result.
Finally, make sure your personal estate plan refers back to and is consistent with the provisions of these agreements. That way, there will be no contradictions as between your personal estate plan and your business’ estate plan.
Please visit my website or contact me directly if you would like any more information regarding Business Succession Planning, Asset Protection or Estate Planning. www.AssetProtectionAttorneys.com | The Presser Law Firm, P.A.