Business Planning

For many individuals in the United States, their business is their life’s work.  There are more than 10 million business owners in the United States, and those business owners will need to decide when and how to step out of the business they have worked so hard to build.  The answer to those questions is different for every business owner, and will form the foundation of a business succession plan.

Business succession plans identify who the business will be transferred to (such as family members, key employees, or a third party buyer), when that will happen, whether the business will provide retirement income for the business owner, and many more questions.  A good business succession plan will also ensure that if something unforeseen happens to the owner or a key employee, the business will continue to function properly and support the owners and others whose livelihood depends on the success of the business.

Developing a business succession starts with identifying the business owner’s goals, updating estate planning documents, and reviewing insurance policies.  Business succession planning can also include the use of some of the following tools.

Buy-Sell Agreements

This is an agreement between individual owners in the business that provides restrictions on transferring assets.  These can avoid a business owner being in business with the spouse of a deceased owner, or the ex-spouse of a divorced business partner.  Certain events can trigger the “buy-sell” provisions of the agreement which forces an individual or company to either sell their stake in the company, or buy another’s stake in the company.  These agreements can be funded by life insurance.

Family Limited Partnerships

These can be used to move the family business from one generation to the next in the most tax efficient manner possible.  These entities may allow a business owner to transfer more interests tax free per year to the next generation than without them, and can provide some asset protection for the next generation as well.

Life and Disability Insurance

Life and Disability insurance can provide liquidity to business owners in the event of the disability or death of a key employee, and can also fund Buy-Sell Agreements.

Use of Trusts in Succession Planning

Using different types of trusts in conjunction with other business succession strategies can provide asset protection for current and future generations, and can also allow a business owner to transfer more interests tax free than they could without the trusts.

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