Latimer LeVay Fyock, LLCLatimer LeVay Fyock, LLC

Steadiness and Security v. Disruption and Disputes: Why a Business Succession Plan Can Make All The Difference

Brian D. LeVay

Most small or family-held business owners know they should have a comprehensive estate plan, and many of them do. Most of those successful leaders probably know that they should also have a business succession plan in place. Intuitively, they know that the lack of a clear and detailed succession plan can have devastating consequences for their small business, especially when they want to retire, if they're going to sell the company, or if they pass away suddenly or become incapacitated by an unexpected tragedy. They know they should address these critical issues now.

But knowing and doing are two wildly different things.

A Big Blind Spot For Otherwise Visionary People

In PwC’s 2019 US Family Business Survey, just over half (58%) of family-held business owners reported having succession plans, but most of them were “informal.” Only 23% said they have a formal written plan in place.

How can it be that such a large percentage of smart, savvy, driven, and forward-thinking entrepreneurs and owners have this blind spot when so much of their personal and business fortunes hang in the balance? The answer is deceptively simple and mirrors the reason so many sophisticated and successful individuals fail to establish estate plans: It’s uncomfortable to think about and discuss the end of your life, and easy to be in denial about the inevitability of moving on from a business you spent decades building.

Integrating Your Estate Plan Into Your Succession Planning


But creating holistic plans that address both the business and the personal can be the key to a secure retirement. Integrating your succession and estate planning strategies can help you minimize your tax liabilities and maximize the assets available to your heirs. It can determine whether your business continues to thrive and grow with minimal disruption after you pass away or relinquish control and ownership.

For example, if you want to pass ownership of your company to some or all of your children while maintaining control of the company, you can use lifetime gifting strategies as part of your estate plan, transferring some or all of your interest in the business while you are still alive. This allows future appreciation in the value of the company to accumulate outside of your estate and while you and your children avoid taxes on any appreciation in value after the date of the transfer.

You can also establish a specialized trust as part of your estate plan to achieve similar goals. With a Grantor Retained Annuity Trust (GRAT), you can transfer highly appreciating assets, such as ownership interests in your business, in a trust in exchange for a short-term annuity. If structured correctly, this could be a powerful tool to transfer business interests and any future appreciation to the next generation while saving on estate or gift taxes.

These are just two of many ways your estate plan and succession can work in concert to accomplish a wide range of goals.

Conversely, however, the failure to have integrated estate and succession plans can leave your business paralyzed by disputes, confusion, or a lack of vision about how to move forward. Family members unsure of your wishes or objectives and with divergent interests and priorities may come to loggerheads, poisoning personal relationships and damaging business ones.  

As such, the time to plan for tomorrow is today, whether you are approaching retirement or have decades of hard work still ahead of you.

The Questions Your Succession Plan Can Answer

There is no such thing as a “one-size-fits-all” business succession plan. The tools, strategies, and approaches will vary depending on each individual’s personal and business goals, financial profile, and family dynamics, among other factors.

But all good business succession plans should provide answers to the same fundamental questions that every owner lacking such a plan should ask themselves:

  • Does my business have a written Operating Agreement, Shareholder Agreement, or Buy-Sell Agreement?
  • Have I identified, prepared, and appointed a successor who is ready to take over the reins if something were to happen to me tomorrow?
  • Is there a plan for the ownership, control, and governance of the company in my absence?
  • Are the roles and responsibilities of shareholders or members clearly set forth in writing?
  • Will the respective ownership or membership shares of my family members and other investors be settled upon when I retire?  
  • Is there enough liquidity in my business to avoid a forced sale?
  • Will I or any other family member be relying upon the business to meet my personal retirement cash flow needs, and if so, how will I ensure that I have sufficient income for those needs?
  • Are my business interests properly titled in my trust to avoid probate in the event of incapacity or death?   

How to Get The Succession Ball Rolling

When it comes to both estate planning and business succession planning, the first steps can be the hardest. Here are three ways you can get the ball rolling on your business succession plan:

  1. Start now. When it comes to succession planning, sooner is definitely better. If you have already started thinking about handing over the reins or retiring in a few years, there is simply no more time to waste. You will need that time to work through all of the details of your plan with your business succession planning lawyer and address issues you haven’t even considered.
  2. Get your team together. The legal, financial, tax, and other implications of a turnover in ownership and leadership can be overwhelming and full of potential missteps. It is crucial that you work with experts in the area of business succession, including attorneys, accountants, tax advisors.
  3. Talk. Free discussion and open communication with family members and company leadership is key to ensuring a smooth transition and minimizing the chance of disagreement and confusion down the road.

If you are ready to take the steps you know are necessary to secure your personal and business futures, please contact the estate planning and business succession attorneys at Latimer LeVay Fyock today.