How To Handle Family Business Succession Planning With Your Estate Plan

Family business succession planning

How To Handle Family Business Succession Planning With Your Estate Plan

Family business succession planning can mean making some of the toughest and, at the same time, some of the most important decisions when creating an estate plan. Determining what happens to your family business may be an emotionally taxing process, especially if you do not know where to start. However, succession planning is something a business owner should address sooner rather than later. Any business is likely to undergo changes in its ownership at some point, and it is best to have a detailed plan in place to ensure a smooth transition from one company leader to the next. The experienced estate planning attorneys at Loughlin Law, P.A. help business owners safeguard their wealth, minimize tax burdens, and prepare for a seamless transition of leadership that ensures continuity and stability. Call (561) 677-8384 today to schedule a consultation to review your unique situation and discuss your family business succession planning needs.

What Is Family Business Succession Planning?

According to Grand Valley State University’s Family Owned Business Institute, there are 5.5 million family-owned businesses across the United States, which contribute about 57% of the nation’s gross domestic product (GDP) annually. While many owners of family businesses realize the need for a succession plan, others do not understand what it is or how to begin. Business succession planning involves creating a written and detailed plan for the transfer of ownership. Family business succession planning simply applies the process to a business owned within a single family, usually with the aim of eventually transferring ownership of the business and key roles within its leadership structure to one or more member(s) of the same family.

Succession Planning for Family Businesses

For businesses of any size or type, succession planning can help ensure the continuity of daily operations in the event of both voluntary and involuntary exits. Whether a business owner decides to retire, becomes disabled, or dies, a succession plan will come into effect to decide the future of the company. The key difference between succession planning for a family business and any other kind is that succession planning for a family business is more likely to be handled within the founder’s personal estate plan. With a well-drafted succession plan, the owner can determine two key things:

  1. Who will own controlling shares of the family business after their voluntary or involuntary exit?
  2. Who will run the business?

Choosing a Successor for a Family Business

While the founder’s heirs are often considered the owner’s preferred choice for those who will own controlling shares of the family business and assume leadership roles within the company, this is not always the case. A family business may not pass down to heirs when (a) heirs are not interested in running the family business; or (b) the founder doubts that their heirs are the best choice for the company’s future.

Family business succession planning involves honestly evaluating whether there are potential candidates for succession within the family who would become suitable and willing successors. Once these successors have been identified, the owner needs to develop a strategic plan for how the transfer of ownership will happen and identify for their successors the direction that the family business should take.

What Are the Benefits of Business Succession Planning?

Having a well-articulated and comprehensive succession plan is associated with several benefits, including but not limited to:

  • Providing a level of certainty for the business owner, their family members, and everyone involved in the business, including employees, shareholders, customers, and others
  • Ensuring the business’s continuity and stability
  • Identifying and preparing potential successors for their future roles in the business
  • Ensuring that the owner’s vision and values are respected by future generations
  • Minimizing tax and legal issues

These are some of the key benefits of family business succession planning, but every business has unique needs and circumstances when developing a succession plan. This is why you may want to consider speaking with an attorney at Loughlin Law, P.A., who can help you develop the optimal succession planning documents for your family business.

What Is the Difference Between an Estate Plan and a Succession Plan?

The terms “estate plan” and “succession plan” can sound very much alike. However, these two types of plans often serve different purposes and help achieve different end results. Some typical goals that can be accomplished through estate planning include:

  • The distribution of the person’s assets — not just business assets — after their passing or in the event of their incapacity
  • The designation of persons who would be in charge of making critical decisions for the person in the event of their incapacity
  • The designation of a personal representative of the person’s estate through a Last Will and Testament (also known as a will)

A succession plan, on the other hand, deals only with who will take over the business when the owners retire or in the event that unexpected misfortunes remove them from the business prematurely. A succession plan can be an integral component of a well-crafted estate plan when the person creating the plan has a business. A business owner does not need to choose one of these plans; in many cases, it is advisable to create both a personal estate plan and a succession plan for your business. However, it is critical to ensure that both the succession plan and the estate plan meet the statutory requirements to be valid. For example, under Florida Statute § 732.502, a will must be signed in the presence of two attesting adult witnesses to be valid and legally binding.

The Process of Succession Planning for Your Family Business

The process of establishing a family business succession plan follows a similar pattern regardless of the business’s value, size, or industry. However, to be effective, a succession plan should be tailored to the company’s unique needs, goals, and circumstances, as well as to family dynamics. Creating a succession plan for a family business is typically a six-step process:

  1. Discuss matters with the family. Having family discussions is vital because it ensures that everyone is on the same page about the need for a succession plan.
  2. Set clear goals. Without clearly established goals, a business owner may have a hard time creating a well-articulated succession plan.
  3. Get a business valuation. Without a proper and independent business valuation, approaching family business succession planning can be difficult.
  4. Identify candidates for succession. Identifying high-potential candidates for key roles in a family business can be challenging, especially if heirs are either not willing to take over the business or are not a suitable choice.
  5. Consider transition options. Options for a business transition depend on the owner’s goals and vision for the company’s future. The owner may gift, sell, or bequeath the company to family members, or use a combination of the three.
  6. Communicate your plan. The success of a business succession plan often depends on the owner’s ability to communicate the plan to the candidates for succession, the company’s management, family members, employees, shareholders, and other interested parties.

Contact a Florida Succession Planning Attorney Today

Developing a well-crafted succession plan for a family business is a process that may benefit from taking plenty of time to explore your options, consider key issues, and mitigate potential risks and negative implications. For this reason, it is generally a good idea to begin the process of establishing a business succession plan for your family business early. To seek the advice of an experienced business and estate planning attorney with your family business succession planning, call (561) 677-8384 to schedule your consultation with Loughlin Law, P.A. today.

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