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Why Is Phoenix Business Succession Planning Important?

Phoenix business succession planning

Phoenix business succession planningIf you are one of the millions of Americans who has struggled to get a small business off the ground, you likely have a small fortune invested in your business, in terms of money, time, energy, and concern. You probably went to the trouble and expense to purchase a variety of business insurance policies to protect your investment in the event of a natural disaster, theft, or accident. How will your business survive, though, if something happens to you?  Have you planned for the potential tax consequences of passing your business down to the next generation? Have you even assured that your business will pass to your desired beneficiaries?  If you prefer that the business be sold and the profits used to support your family when you are gone, are you certain your loved ones will receive a fair price for the business? All of these questions can be answered by including Phoenix business succession planning in your comprehensive estate plan.

Why Do I Need to Incorporate Business Succession Planning into My Estate Plan?

Business succession planning is necessary if you care to protect your financial – and even emotional – investment in your business, as well as to ensure that it makes a successful transition to the next generation. To illustrate the importance of business succession planning, ask yourself the following questions:

  • If you are incapacitated tomorrow in a tragic accident, who will take over the immediate day to day control of your business?
  • Is it clear to your employees, business associates, and family who will take over?
  • Does the individual designated to take over have the legal authority to do so?
  • Will your family continue to benefit from the business’s success in your absence?
  • If you become permanently disabled, or retire, who will take over your business?
  • Will your business be included in the probate of your estate?
  • If your business will be part of your estate, what will happen to the value of your interest in the business if it is sold?
  • If your business is a family owned business, have you prepared the next generation to take over?
  • Have you set up the proper legal structure for the business to facilitate the transfer to the next generation?
  • What will the tax implications be for your business should you die?
  • Does the business have sufficient liquid assets to cover any tax or other debt that might be owed when you die?

Common Strategies for Business Succession Planning

The best way to ensure that your business is protected if something happens to you, and that it is handled according to your wishes upon your death, is to include business succession strategies in your overall estate plan. Some common options include:

  • Gifting in your Last Will and Testament, or preferably your Living Trust – if your business is a sole proprietorship, you can simply gift the business and all the business assets to someone in your Will or Trust. There are a number of reasons why this is not the best option, as your attorney can explain, including the likely tax liability.
  • Family Limited Partnership – if you plan to keep the business in the family, a family limited partnership, or FLP, may be best for you and your family. You can maintain majority control and day-to-day management of the company for as long as you wish; however, your successor can also begin to learn the business while you are still around to provide guidance and advice. In addition, there are typically some significant tax advantages to creating an FLP.
  • Limited Liability Company – in addition to providing asset protection against creditors arising from business, and even outside, activities, an LLC can assist with proper and timely transition upon your retirement, disability or death.
  • Buy-Sell Agreement -- this option is often used when there are partners involved who are not family members. A buy-sell agreement allows you to determine ahead of time what your interest in the business is worth or, in the alternative, provides an agreed upon method of valuing the business when the time comes that you are no longer involved. Your partner(s) agrees to purchase your interest in the business should certain events occur. This ensures the continuation of the business and a fair price for the sale of your interest in the business, the proceeds of which will then become part of your estate or will go directly to your loved ones.

Contact a Phoenix Business Succession Planning Lawyer

For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about business succession planning , contact an experienced Phoenix estate planning lawyer at Morris Hall PLLC by calling 888-222-1328 to schedule your appointment today.

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