A simple search online these days can turn up lots of advice regarding the importance and benefits of buy-sell agreements, deferred compensation agreements, and life insurance in family business succession planning.
While knowing this information is valuable when thinking about the transition of a family business planning process from one generation to the next, none of it will come into play until a business owner is prepared to face reality and take action. Believe it or not, very few entrepreneurs implement any sort of succession plan, and those that do may fail to create the most successful strategy for passing on their business.
As an owner, the sooner you’re able to face the reality that your current stage of succession planning, or lack thereof, has predictable and negative consequences for your family’s business, the sooner you’ll be able to take action and create an effective succession plan to ensure your business will survive after you’re gone.
Let’s take a closer look at what is meant by “facing reality.”
Questions to Answer
Answering questions focused on the circumstances of your business after you’re no longer around can give you a better idea of where you are in terms of planning, and where you would like to be.
Here are some of the most important questions:
- When you want to retire, is your family capable of running your business?
- When you retire, will your partners voluntarily pay you the value of your interest in the business?
- If you die prematurely, will your business have the necessary capital to survive?
- If you die suddenly, will your partners voluntarily pay your heirs the value of your interest in the business?
Did you answer “no” to one or more of these questions? If so, you’ll begin to realize that both your heirs and the family business will be in jeopardy unless appropriate steps are taken in the near future.
Another Big Question
In addition to the above, here is another question to consider: when you die, will your heirs have to sell some or all of the family business just to pay the estate taxes?
If the answer is “yes,” then as an owner, you should take immediate action! Here are your options when moving forward.
- You can enter into a buy-sell agreement to ensure the owner or the owner’s heirs are paid the value of the owner’s interest.
- Purchase Life insurance or make other arrangements to fund payments required at the owner’s retirement or death.
- You can implement a gifting strategy to reduce or eliminate estate taxes otherwise due
Facing the reality of business succession planning can be challenging, but you can act now to ensure your business passes to your heirs as intended – protecting a lifetime of hard work. When planning your estate, the best course of action is to seek the assistance of an experienced estate planning attorney, so call our office today at 888-222-1328 to schedule an appointment.