For family owned businesses, planning is the key to ensuring a smooth and successful transition of the business to the next generation. A thorough and well-documented plan is a gift to your family and your employees, and helps to safeguard the future of your family business.
Why do I need a Succession Plan?
Family businesses often struggle to implement a successful succession plan or ignore the issue entirely. A well thought out succession plan can help your business retain its value in the event of unforeseen circumstances, such as the death or disability of the owner(s). It can also allow the owner(s) to plan for the future generation of ownership in the most tax efficient manner possible. A successful succession plan focuses not only on business planning from a strategic and financial perspective, but also on individual planning for the owner(s) of the business from an estate planning perspective. A succession plan that clearly articulates your intentions with respect to the future ownership of the company and how that will occur can provide an incentive for the next generation and, in the right circumstances, an opportunity for potential tax savings for all parties.
Who should I have on my Advisor Team?
Having the right advisor team is critical for creating and properly implementing a successful succession plan. A business owner should identify and engage a team of professionals who have expertise in advising business owners and their families about succession and estate planning matters. That team typically includes a CPA, a financial advisor, a valuation expert (if necessary), and an attorney who specializes in business succession planning and estate planning. A good team’s expertise will help you evaluate your goals, devise strategies to achieve them from both a legal perspective and a financial perspective (including potential tax savings for you and the next generation), and help you to efficiently execute those strategies for a successful transition. Assembling an experienced team is one of the best investments you can make to accomplish your succession planning goals.
Our children are not equally involved in the business. How can we ensure the children are treated fairly through our Succession Plan?
Your succession plan should include an estate planning component and requires aligning your goals for the future of your family business with the division and management of your assets following your death. While many families wish to treat all children equally, complications arise when one or more of the children will likely run the business and others are uninvolved. During the estate planning process, you will work though options and determine what is fair for your family. Your advisor team can help you work though how to allocate ownership and voting rights in the business, along with your non-business assets, to best meet your goals. Further, a good advisor team can help you set expectations and facilitate a smooth transition by communicating the succession plan to your family at the appropriate time.
How often should we revisit our Succession Plan?
A succession plan is not a one-time event, it is an on-going process that needs to continually be reviewed and adjusted to meet changing circumstances. Many outside influences impact the succession plan: tax laws, estate planning techniques, family circumstances, and relationship dynamics. Changes in tax law, including changes in the estate tax exemptions, should prompt a review and may require altering or accelerating components of your planning. If there are changes in key employees or the roles family members are playing in the business, your succession plan may be impacted. Finally, you should review your plan upon major life events, including deaths, marriages, and major illnesses or medical diagnoses. Absent any major changes in law or personal circumstances, the plan should be formally reviewed with your advisor team at least every two years.
Rhoades McKee Business and Estate Planning Attorneys understand the importance of identifying, investigating, and responding to interrelated legal issues for each unique family owned business situation. For more information on creating and implementing a successful family business succession plan or Rhoades McKee’s interdisciplinary team approach, visit rhoadesmckee.com.