In the last article of our succession planning series, you learned about the factors to keep in mind when designing a framework for your succession plan. Today's article builds on this foundational knowledge by showing you how to integrate your succession planning strategy with your estate plan. But first, what is an estate plan?

How an Estate Plan Works

What comes to mind when you think of an estate plan? Most Americans mistakenly believe that estate planning is only necessary for the wealthy. This could not be further from the truth. Anyone with physical assets should consider estate planning to deliberate and decide how these assets will be preserved, managed, and distributed after death. It is crucial to note that estate planning covers both tangible and intangible assets, including houses, vehicles, stocks, art, collectibles, life insurance policies, pensions, debts, and more.

Conversely, business succession planning focuses on managing changes in ownership or leadership within an organization when a key figure exits due to death, disability, divorce, or retirement. It effectively manages the talent gap that arises when a notable company employee or owner exits the business.

The Benefits of Integrating Estate Planning with Succession Planning

Now that you know what estate planning and business succession entail, let's explore the benefits of integrating them.

Seamless Ownership Transition

Nothing lasts forever. When your time to exit the business inevitably comes, a comprehensive estate plan—integrated with succession planning—will ensure a smooth transfer of ownership and facilitate business continuity. Additionally, this integration also addresses the legal and financial frameworks necessary to support the business transition.

Minimizing Tax Liabilities

By carefully planning your estate and integrating it with your business succession plan, you can minimize estate taxes. For example, gifting assets to family members within the annual gift tax exclusion limits allows you to transfer wealth without incurring gift taxes. At the same time, some types of trusts, like irrevocable trusts, can remove assets from your estate, effectively reducing estate taxes.

Asset Protection

Without a coordinated estate and business succession plan, your assets may go through a lengthy probate process, which might not serve the best interests of your family and loved ones. Planning early enough can protect your assets from disputes and external claims, ensuring they remain within the family or designated successors.

Financial Security for Your Heirs

Apart from protecting your business interests, an efficient estate and succession plan ensures that your heirs' financial affairs are handled. By clearly designating assets to specific heirs through enforceable legal documents, like wills, you reduce the risk of conflict among family members.

How to Integrate Estate Planning and Succession Planning

Up to this point, you're aware of what succession and estate planning entail and the benefits of integrating these two concepts. So, then, how can you integrate your estate plan and succession plan?

Start by Reviewing Ownership Structures and Documents

It is essential to ensure that your business's legal structure aligns with your overall estate plan. This means reviewing your partnership agreements, shareholder agreements, and operating agreements to identify clauses pertaining to succession plans and the transfer of business ownership. This review helps identify any gaps or inconsistencies that could hinder a smooth ownership transition.

Address Tax Implications

You should know the various tax obligations associated with estate planning and business succession planning. For example, estate taxes can significantly impact your ability to transfer the business to the next generation. For this reason, it is crucial to work with a financial planner and a tax advisor for counsel on designing a tax-efficient estate and business succession strategy.

Implement Estate Planning Tools

Consider implementing the following estate planning tools to effectively manage your estate and business transition strategies:

  • Trusts
    A trust is a legal entity involving a fiduciary arrangement between a grantor and the trustee. The grantor gives the trustee the right to manage property or assets held in the trust on behalf of a third party, otherwise known as a beneficiary. You can use trusts to hold and manage assets for minor or incapacitated beneficiaries and distribute wealth according to your wishes.
  • Wills
    Wills are also efficient structures to plan for your estate and business transition. A will is a legal document that specifies how your assets should be distributed upon your death or incapacitation.
  • Buy-sell agreements
    A buy-sell agreement is a legal document that details what will happen to a business in the event of a partner's death, disability or retirement. Use buy-sell agreements to detail how ownership interests will be transferred, preventing conflict among family members.

Conclusion

When effectively integrated, estate and succession planning can ensure a smooth transfer of business ownership, minimizing conflicts that could lead to a lengthy probate process and family disputes. Join us next time for our next article, where we'll explain how gift tax limitations affect succession planning.

Are you wondering about any of the issues mentioned above? Please email us at info@wilkinsonlawllc.com or call (732) 410-7595 for assistance.

At Wilkinson Law, we give business owners the clarity they need to fund, grow, protect, and sell their businesses. We are trustworthy business advisors keeping your business on TRACK: Trustworthy. Reliable. Available. Caring. Knowledgeable.®

Categories: Succession Planning