Understanding the Role of an Estate Attorney in Business Succession Planning

Business succession planning focuses on safeguarding the continued operation of a company in the event of the death or disability of an owner, executive, or shareholder. With a proper plan, valuable businesses can avoid unforeseen problems.

Merlino & Gonzalez help owners across Staten Island, New York City, & New Jersey with their business succession plans. Contact us today for more information.

Identifying Potential Successors

Choosing the fitting successor is one of your most critical business decisions. Your chosen person will determine how successful the business is after your exit. It is essential to start searching for a successor well before your desired transition date, as the best candidates are often busy and will have other career opportunities.

When choosing a successor, you should consider the candidate’s availability, competence, character, commitment, and capacity. Ideally, the person you choose will be willing to invest in the business and understand your vision for its future success.

It would help if you also considered how the succession will be funded. You can use a life insurance policy or seller financing to sell your company share to an employee who pays you back over time. This can help reduce unforeseen estate tax liability, litigation costs, and family disputes. Ultimately, the proper successor will allow you to retire with peace of mind.

Developing a Plan

A business succession plan can help a family-owned business prepare for the ownership transition. A well-executed strategy can reduce headaches, drama, and monetary loss for heirs.

A plan can include formalized standard operating procedures, employee handbooks, and documentation of recurring meetings and processes. It can also have a method for valuing the business and details on how the company will be funded during the transition, whether through life insurance, seller financing, or another option.

The business owner, coworkers, or other shareholders should be consulted when creating a plan. An attorney at Lulich.com can provide guidance and legal documents to ensure that the project aligns with any estate planning goals and tax planning considerations. There needs to be more planning to expose the business to colossal estate and gift taxes, which may force the sale of the company to pay these obligations. This could ruin the heirs’ financial future and harm their ability to enjoy the founder’s legacy.

Creating a Buy-Sell Agreement

One of the most important aspects of a business succession plan is developing an agreement that stipulates how shares in the company are bought and sold upon specific triggering events. This prevents unwanted heirs or partners from owning the company and having a say in its run.

An estate attorney can help to create buy-sell agreements that can be tied into an overall estate plan. This ensures that the proper tax considerations are accounted for when transferring business ownership.

For example, a buy-sell agreement can stipulate that an owner who wishes to relinquish their share can monetize the stock through the purchase of life insurance policies. This helps reduce the risk that a deceased shareholder’s share will be sold for far less than its actual value to an uninterested third party. This is especially common when family members are potential company share buyers. Such an agreement can also help to avoid litigation upon death.

Creating an Exit Strategy

A business plan must be created, or an existing one modified, to account for the succession process. This will involve identifying the goals, ambitions, and personal feelings of family members and other co-owners and how they will impact the business. Professional advisors must also be consulted – accountants for business evaluations and tax planning, lawyers to prepare legal agreements, and financial advisors to determine investment and income strategies.

An acquisition is one of the more traditional ways to exit a business. This involves finding another company that is interested in buying the business. It is essential to keep a list of potential buyers refreshed regularly. If not, you may be forced to sell the company for less than it is worth, which can damage relationships with friends and family. In addition, acquisitions often come with non-compete clauses that prevent former owners from working in the industry they were previously in.