Estate Planning for Business Owners

What to Consider When Planning a Business Succession Plan

Estate Planning for Business Owners typically involves creating a succession plan, so that the business may either continue functioning efficiently under the next generation’s management, or otherwise be sold in a controlled, appropriate manner so that the family may receive as much of the business’ wealth and equity as possible. Business estate planning involves all of the classic estate planning documents, as well as business-specific actions such as amendments to the company’s operating agreement, bylaws, or shareholder agreements.

Leaving the Business to a Non-Family Member

If the client’s company is not sold during their lifetime, it will be paramount to find an appropriate successor who can continue running the business after the former owner has died. If the successor will be a non-family member, such as a current “key man” employee, it will be very important to create an appropriate estate plan that navigates this sensitive transfer and avoids disputes or misunderstandings. The goal is to make a plan that both fairly pays out to the deceased owner’s family and which the successor can feasibly comply with, such as a stipulated buy-out price with payments set to take place over a controlled and reasonable time period.

Leaving the Business to a Family Member

If the company’s successor will be a family member or child, it can be important to consider and balance the inheritances received by the other children, especially if not all of them will be involved with managing and owning the company after the owner has died. Selecting an appropriate successor, or team of successors, is the toughest decision to make. Sometimes selling the company and recouping its wealth while the owner is still alive is a better decision, rather than risking the business being spoiled by an unprepared, inexperienced successor in the next generation. Failing to consider the family dynamics in passing a company on to children or employees can create infighting and disputes, which ultimately could destroy a business entirely.