Succession Planning


Business Succession Planning

This is simply planning in advance for the transition of your business at the inevitable time of your retirement, disability or death. Here are a few alarming facts about what happens when the planning is inadequate.

  1. Only 30 percent of family-owned businesses survive to the 2nd generation, only 12 percent survive to the 3rd generation, and only 3 percent to the 4th generation.
  2. A University of Connecticut Survey of 800 family-owned businesses found that 48 percent of all business failures were precipitated by the founder’s death.


Sound advice

  1. The planning for the succession of your business might take a few months, and cost a few thousand dollars, but it could save years of trouble and hundreds of thousands of dollars later on.
  2. Business Succession Planning could assure the continuation of your business after your death or retirement, thereby protecting your investment for your heirs as well as the jobs of your loyal employees.
  3. Without Succession Planning, your business could be forced to close because of estate taxes or disputes among heirs and current owners.

Situation: Two partners have spent the past 30 years building their business, and it is now worth nearly $3,000,000. One partner is 10 years older than the other. The younger partner is concerned that if the other passes away, his widow will become a partner. She has no knowledge of the business, yet would have an equal vote. Can this situation be avoided?

Solution: The partners can enter into a Buy/Sell Agreement to provide for the sale of their individual shares of the company to the other upon the death of either of them.  In this agreement, they can agree on a fair price in advance and provide for the method of payment of the purchase price, which can be in cash funded by insurance, or can be in installments over a number of years, or some combination of the two.  That agreement will be beneficial to all parties, since the one partner’s widow would benefit in knowing she will get some value for her husband’s many years of hard work, and the surviving partner would know he could continue the business without interference.


Situation: A 60-year-old has owned his business for 20 years. He’s not sure when he should begin thinking about Business Succession Planning, and if he still owns his business at the time of his death, will it be taxed as part of his estate?

Solution: Business Succession Planning should be started right away. It may take years to implement the plan that is best for a business owner, so the time to start is now. And yes, businesses will be taxed as part of one’s estate, if the entire estate (including life insurance at face value, all retirement accounts, real estate equity, and all investments) exceeds the Federal and State tax free amounts at the time of death. Since the estate tax is about half of the value of the estate over the tax free amount and it is due nine months after one’s death, there is great incentive to plan to legally avoid all estate taxes.


Situation: A business owner wants to know how to avoid capital gains tax upon the sale of his business.

Solution:  There are several perfectly legal techniques to avoid capital gains taxes on the sale of a business. However, it is recommended that the business owner sit down with a competent attorney to see how these techniques might work in his specific case.