4 Considerations For Business Succession Planning


As a business owner, it is important to ask, “If I could no longer operate my business, what would happen to it?” If you struggle to answer this question, it is time to implement a business succession plan. For many small business owners, the equity in their business and the income it generates comprise the bulk of the owner’s estate and provide the means of support for the business owner’s family. Upon the death or disability of the owner, many families are left scrambling to operate a business with which they are unfamiliar or unqualified to run, leading the to the eventual loss of customers and key employees. Ultimately, the owner’s family may be stuck with a business that loses its value or becomes a financial burden to the family. Fortunately, proper business succession planning can prevent this and provide an avenue to support the owner’s heirs, whether through internal or external sale, continued operation by the family, or liquidation.

1. Buy-Sell Agreement

Implementing a buy-sell agreement that sets the terms under which an owner’s interest in the business should be sold, to whom, and at what price is a critical element of a successful business succession plan. An insurance backed buy-sell agreement used in conjunction with an irrevocable business acquisition trust that holds insurance policies on the owner’s life provides even more security by ensuring immediate liquidity for the owner’s family.

2. Retention of Key Employees

Many business owners want their business to continue if something happens to them. Unless the business is operated entirely by the family, it is often necessary to retain key employees to ensure its continued success. Offering phantom equity awards, profits interest equity purchase options, and key-man insurance are several ways to incentivize key employees to remain with the business and have an interest in its long-term success.

3. Estate and Tax Planning Considerations

When it becomes clear that a family business will have significant long-term value, business owners should consider transferring ownership interests in the business to one or more irrevocable trusts to remove appreciation from the owner’s estate and implement multi-generational dynasty trust planning.

4. Asset Protection

Restructuring the business as a multi-member LLC can provide asset protection benefits. A corporation, whether taxed as an S or C corp., can easily convert to an LLC and maintain its original tax status.

Succession planning for a family business can be emotional and overwhelming, so it is important to seek professional advice. Schedule a meeting with an MAI Wealth Advisor to discuss the best strategies that will benefit you and your family.

Source: Ivan & Daugustinis Estate and Tax Attorneys – Information updated as of 10.4.23.

The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.

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