Some people start a professional career that is benefitted by starting a business. Starting a small professional practice, becoming a local service provider or even opening a retail business can be ways for an entrepreneur to be their own boss. There are also many people who purchase a business, such as those who run franchises, and others who might inherit a business.
Those who run a business have obligations to the company, to their customers/clients and even to their employees. They often aim to keep the company operational even after they retire or die. Therefore, when a business owner starts thinking about what happens when they die or when their health declines later in life, they will typically need to put together a succession plan in addition to a basic estate plan.
What is a succession plan?
An estate plan gives a testator peace of mind by directing the distribution of their assets after their death and providing certain support for loved ones. A will or trust is often the tool someone uses to transfer ownership of their business in their estate plan to someone they trust or perhaps all of their children jointly. Simply arranging for someone to inherit a business could lead to hardship when the current owner or operator dies. Ensuring that the right person inherits the business is very important, but it is far from the only concern if the entrepreneur or owner thinking about the future of the organization wants the company to continue operating even after their death.
Generally, succession planning requires identifying key characteristics, education, experience and training that can help someone take over a managerial or executive role at the company. Succession planning could also include specifically nominating individuals who could fill that role in providing instructions for their training, as well as a walk-through of their basic job responsibilities.
When created in conjunction with an estate plan that addresses the ownership of the business, a succession plan can potentially help keep the business solvent even during a difficult transition when someone dies. Like an estate plan, a succession plan may occasionally require updates when an individual’s relationships or business circumstances evolve.
Seeking legal guidance to craft a succession plan can be a very important part of the estate planning process for someone who has an interest in a business.