A great article on WealthManagement.com lists the 8 most pressing questions about estate planning. One of the questions this article poses is “What’s the most overlooked area of estate planning?”
The answer given is business succession planning, and at Generations Law Group, we believe this is absolutely correct. We have been counseling Idaho business owners for years about the pressing need to establish a succession plan for their business.
But what is a business succession plan? And why is it such a crucial area of estate planning that is often overlooked?
What is a business succession plan?
An estate plan is a comprehensive legal plan that will manage all your property, assets, and possessions after your death. Estate plans often contain documents such as wills and trusts, and can include information about your estate, your children, and even your business.
A business succession plan is a similar document that outlines the transfer of ownership and management of the company after the owner’s death or retirement. Since many small business owners are the sole owners and operators of their businesses, it’s common to include a plan for succession within their personal estate plans.
Business succession plans can cover any of the following topics:
- Choosing a successor or successors
- Valuing the business
- Maximizing tax benefits
- Setting a timetable for the transition
- Preparing your team for the transition (training, documentation, etc.)
- Securing your future after retirement
At Generations Law Group, we recommend developing both an orderly succession plan, which prepares for the gradual transfer of ownership within your own timetable, as well as a crisis succession plan, which dictates the transfer of ownership in the event that you are incapacitated or pass away.
What happens when your business doesn’t have a succession plan
Generation Law Group published an article titled A Tale of Two Small Businesses, reporting on the stories of two small businesses that went through crisis succession. Neither business had a succession plan, and the result was months of legal negotiations and uncertainty.
One of the most important aspects of a business succession plan is the naming of a successor. In the absence of a legally named successor, Idaho law dictates that the business passes to the deceased owner’s next of kin. This is exactly what happened to the two small businesses we worked with in 2019.
For one of the businesses, it legally passed to the deceased owner’s teenage son, barely out of high school. Through no fault of his own, he was not prepared to manage an entire business. As a result, the business almost went under, before we were able to secure a sale and allow the new owner the freedom to live his life.
5 reasons to develop a plan today
As this example illustrates, a crisis can happen at any time. But there are important reasons why you should have a succession plan even in the absence of a sudden incapacitation crisis.
Here are 5 reasons to develop a succession plan as soon as possible:
- To make sure your business continues after your death or retirement
- To prevent an expensive process that could burden your successors or threaten your business
- To avoid default state laws
- To minimize estate and gift taxes
- To provide guidance to your successors and establish your legacy
Hire an estate planning attorney in Idaho today
While business succession plans are absolutely crucial to the long-term success of your business, the legal process can be a bit complicated. The best way to ensure you have an airtight plan is to consult with an attorney who has experience in estate planning and business succession strategies.
Generation Law Group has been working with Idaho small business owners for years, and we have the experience and the understanding of the law to help you protect the legacy of your company for years to come. Contact us today to schedule a consultation.