Planning for the future of your business is not only a financial decision; it’s about ensuring stability for your employees, customers and family. If you’re a business owner looking to transition leadership, protect your assets, or safeguard your financial future, having a strong estate and succession plan is critical. Our panel of experts discuss the key elements of business succession and estate planning. They will provide insights into structuring a seamless transition, protecting business value, and avoiding common pitfalls.

Panelists:

Christopher E. Ratté, Attorney, Business Law and Real Estate, and Amanda K. Steenhuis, Attorney, Trusts, Estates, & Guardianships; Shaheen & Gordon, P.A., shaheengordon.com

Jeff Ventola, Product Marketing Specialist, Service Credit Union, servicecu.org

Christopher E. Ratté and Amanda K. Steenhuis, attorneys, Shaheen & Gordon, P.A. 

What are five steps to good business succession planning?

A good succession plan is vitally important to ensure the smooth transition of ownership and management of a closely held business in the event of the sudden death or incapacity of the owner. Failure to properly plan can have a disastrous effect on the business and its various stakeholders who rely on that business, including the employees, customers, vendors and the owner’s family.

The first step in any business succession plan is to identify the appropriate succession candidates who will take over the business when the owner is gone. It might be an existing partner, a family member or a key employee.

Second, the succession planning will determine how the new owner will take control of the business. If it is a family member, will they inherit the business outright from the owner? If it is a partner or key employee, will they purchase the owner’s shares in the business? If so, how will they pay for it? Will there be life insurance or some other sort of financing?

Third, the value of the business must be determined or a methodology established to determine the value of the business in the event of the owner’s death or incapacity. If life insurance is to be part of the plan, then the owner will need to know the approximate fair market value of the business to determine the amount of life insurance needed. The business value on the date of death will also need to be established for the purchase price in the case of a buyout or to analyze whether there are federal estate tax liabilities and to establish the stepped-up basis in the case of an inheritance. There are various ways to come up with fair market value, so the owner should consult with a professional business appraiser or accountant experienced with business valuations.

Fourth, the owner’s attorney will prepare the necessary agreements and other documents to put the plan into practice. This may include shareholder agreements, partnership agreements, and/or buy-sell agreements. A thorough review of existing formation and operating documents is also required to make sure that there are no conflicting provisions that might interfere with the intended succession plan.

Fifth, the owner must work with their estate planning attorney to ensure that their estate plan works in coordination with their business succession plan. All the various parts of the overall plan must be designed to work together to get the maximum benefit.

Finally, just like an estate plan, once the business succession plan is in place, the owner should review it periodically to make sure that it still represents the best course of action for their business.

Why is estate planning crucial for business owners, and what are the key elements to consider in crafting a comprehensive plan?

Proper estate planning is crucial for small business owners to protect both the owner’s family and the business itself. All too often, a business owner will have a corporate attorney to handle business affairs and a different estate planning attorney to handle their personal affairs. This can often result in two distinct and competing plans. It is important that the business owner’s planning incorporate both personal and business matters in the event of the owner’s death or disability. As a full-service firm, Shaheen & Gordon has a roster of attorneys experienced in specific areas who can work collaboratively to ensure all your unique individual and business legal needs are met.

Jeff Ventola, Product Marketing Specialist, Service Credit Union

What legal structures and instruments are essential for effective estate planning?

A comprehensive estate plan typically includes several key components, each serving a unique purpose in ensuring assets are managed and distributed according to one’s wishes.

• Will: A legal document that dictates how an individual’s assets will be distributed upon their passing. The executor, designated in the will, is responsible for overseeing this process, ensuring all legal and financial matters are handled properly.

• Trusts: A trust allows assets to be placed under the management of a designated trustee, who ensures these assets are handled in accordance with the grant or’s instructions. Trusts can provide financial support for beneficiaries over time and may offer tax benefits and legal protections.

• Power of Attorney (POA): This document grants an appointed individual (agent or attorney-in-fact) the legal authority to make financial or health care decisions on behalf of another person (principal). A health care POA specifically grants authority to make medical decisions if the principal becomes incapacitated.

• Advanced Health Care Directives: These documents outline an individual’s medical care preferences in situations where they are unable to communicate their wishes.

What is the difference between an estate plan and a succession plan?

While estate plans apply broadly to personal and business assets, succession plans specifically focus on the future leadership and ownership of a business. A well-structured succession plan ensures that key roles within a company are filled seamlessly in the event of an owner’s passing. For family-owned businesses, estate planning is particularly crucial in determining how ownership transitions will take place, reducing the risk of disputes or disruptions.

Would the executor of my estate be able to sell my business?

An executor generally has the authority to manage and distribute the deceased’s assets, including making decisions about selling a business. However, if ownership of the business is transferred to heirs or partners through a pre-existing agreement, they would have the ultimate authority over its future. Establishing clear legal documentation ensures that the owner’s wishes regarding the business’s sale or continued operation are honored.

What questions should I ask when planning for the future of my business?

Planning for the future of a business involves more than just financial considerations; it’s about preserving a legacy. Business owners should reflect on the following:

• What do I want to happen to my business after I’m gone?

• Should the business continue operating, and if so, who will take over?

• Are there key employees or family members I wish to transition into leadership roles?

• Would I prefer my business to be sold, with the proceeds benefiting my heirs?

• How can I ensure my business remains financially stable throughout the transition?

By addressing these questions and working with legal and financial professionals, business owners can develop a tailored plan that aligns with their long-term vision.

Estate planning isn’t just about securing financial assets; t’s about ensuring peace of mind for the future.

Whether for an individual or a business, a well-crafted plan lays the foundation for stability, protecting both financial interests and personal legacies.