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Is Your Business Taken Care Of?

Is Your Business Taken Care Of?

| September 20, 2023

If you’re like most business owners, you’ve treated your company like a member of the family. So what happens to it after you’re gone?


Any solid financial plan will include some kind of estate planning. After all, one of the first financial lessons everybody learns is: “You can’t take it with you.” Well, if you’re a business owner, that’s just as true for your company as it is for your nest egg. Only with a company, you’ve got another set of relationships to consider, with your partners, customers, and employees as well as with your loved ones. What happens to the corporation once you’ve no longer got your guiding hand on the wheel?

Succession Planning

That’s the technical term for planning out what happens to the business: identifying the next generation of business leaders, and taking steps to ensure a smooth transition of ownership and management.

A financial advisor might start by reviewing the laws of the state that govern your business. Most states provide that, unless specified otherwise, half your assets go to your children, and half to your spouse. If you live in one of those states and you’re fine with that arrangement, then planning is simple. But if you don’t want your business divided in two upon your passing, then your will or trust will have to specify where your business goes.

The clearer your plan — whether you’re planning on transferring ownership to one family member with a knack for the business, or on selling the business to a third party, or on naming different heirs to different positions within the firm that best suit their talents — the lower the risk of misunderstandings and destructive disputes arising among your loved ones. A good succession plan could outline different roles and responsibilities for all the folks who inherit a piece of the business you built.


Equal Under the Law

If you leave your business to one child and your other heirs are getting your home, investments, or other assets, you want to make sure you’re being fair. That’s difficult enough to do on its own, but you’ll also want to investigate the tax rules in your state. The last thing you or your executors and heirs need is an unexpected consequence that only kicks in when you leave your business to your children or spouse.

Every situation is different, so there are many ways to ensure your business remains profitable for your loved ones. One possible solution would be to create trusts and name two trustees, putting financial assets like your home or investment portfolio in one trust for family members and your business in another. That way, the business trustee could continue to run the business but your spouse or children could continue to draw income from it just as they've done during your lifetime. A different solution would be to establish a buy-sell agreement, in which a partner or third party — or even a friendly competitor — agrees to buy out your share of the business upon your passing, giving your heirs the proceeds of the sale. Another tool that can help is a life insurance policy crafted specifically to cover the expenses from estate taxes or other fees.

You might also want to include a living will or health-care directive to offer guidance for the company in case you’re incapacitated or unable to make decisions. A disability buyout insurance policy, for example, can help finance a buy-sell agreement, that is, providing funds used to buy your shares.

A financial advisor can help structure these arrangements or other alternatives best suited to your individual situation. In fact, it’s quite likely that more than one estate-planning tool will come to bear in minimizing probate costs like estate taxes, capital gains taxes, and income taxes on the estate while also removing potential misunderstandings between grieving loved ones.


Simple Steps

The ins and outs of succession planning can get complicated, but the process of creating a succession plan is fairly simple. First, you would identify what your plan needs to accomplish: who are your heirs, and what should they receive once you’re no longer in the picture. Next, you identify your assets and your liabilities: what makes money, and what’s likely to incur taxes or other costs. Find financial professionals to work with: an advisor might recommend an estate-planning attorney, or a team of professionals including accountants and insurance consultants, or your situation might be simple enough to sort out in one or two meetings without any outside help.

Once that’s accomplished, you’ll create a succession plan including a will, trust, naming of executors, and the granting of powers of attorney. It’s a good idea if beneficiaries are made aware of the plan, or at least clued into the fact that a plan exists.

Finally, that plan should get updated regularly to reflect changing situations as time passes. Perhaps what started as a business with 50 employees suddenly bloomed into a corporation with 500. Maybe the child you were sure would become the next chief executive has gone off to start a company of their own. Maybe you and your spouse have a new child or other dependent to consider, or you sell your house and move into a condo, or any of a dozen other life changes take place. Your succession plan should take any of those changes into account. Regular financial checkups will include taking a look at the plan and tweaking it to stay relevant.

Any wealth management plan will include estate planning for your personal financial assets. A succession plan is part of the same estate-planning process, offering a similar peace of mind for your business, your loved ones, your clients, and your employees.

Talk with our professionals about a tailored plan that aligns with your specific needs and goals.

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For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its
representatives may give legal or tax advice.