When you are a business owner, there is always something that demands your attention, especially as the company grows and becomes more successful.
But what happens to your enterprise if something happens to you? One thing you should not put off is creating a business succession plan.
Passing off to co-owners
If you have a partnership, you can establish a buy-sell agreement. This is basically an agreement under which your partner(s) automatically purchases your interest in the business in the event of your death. This kind of arrangement would work for any co-owner. You can purchase life insurance or establish an irrevocable life insurance trust, or ILIT, to provide the liquidity required.
Planning for ownership transfer
A business succession plan may include various points:
- Development and training of successors
- Delegation of authority and responsibility to successors
- Planning for maximizing the retention of key employees
It is important to consider who will own the business and who will manage it after you are gone. You may want to initiate a transfer during your lifetime so that you can consult with your successor. This approach can reduce the risk of a discounted sale.
Minimizing taxes
Consider creating a trust so that you can minimize the taxes due as of the date of your death. You could establish an ILIT where benefits from the insurance policy are not subject to probate, making them available immediately to pay for estate taxes and more. On the other hand, if you are transferring the business to your children, you may consider establishing a grantor retained annuity trust, or GRAT. If yours is a family business, you could also establish a family limited partnership to hold business assets, which could ultimately reduce your taxable estate.
Seeking help
Whether you are a sole proprietor or partner, or if you founded a company structured as an LLP, seek legal guidance in creating a business succession plan. Once you know that there will be a smooth transfer to others at your death, you can relax and get back to work on the many things that demand your attention.
