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There comes a time when it is prudent to think about life after death. Not necessarily in a philosophical or theological sense, but in a logistical one. We each have tangible and intangible things attached to our name, whether it is a bank account, a boat, a home, an investment property, or a business. These things cannot follow us into the grave.
Arranging for these things to be sold and/or distributed after death is one of the primary tasks of an estate plan. But what about the business? That’s where a succession plan comes into play.
If you own a business, it is important to note that both estate plans and succession plans are very much intertwined and must often be coordinated. For example, if you choose to sell the business as part of your succession plan, the proceeds of the sale (or your shares being bought out of the company) go towards the estate plan.
A carefully crafted estate plan written without consideration for the sale of the company might lose its estate tax-free status, meaning a considerable chunk of the profits from the sale would be spent paying Uncle Sam.
That is just one circumstance. Succession planning and estate planning are two sides of the same coin, and both are equally important for business owners.
An estate plan is comprised of a series of documents outlining what must be done with your estate, i.e., your earthly possessions. An estate is anything owned and left behind in death, from proceeds and royalties for artistic endeavors, to financial instruments such as bonds and securities, bank accounts, life insurance pay-outs, retirement account remainders, properties, and valuables.
There’s more to creating an estate plan than writing on a piece of paper that everything is to be sold and distributed equally among your spouse and children. In addition to properly legitimizing a document like a will with signatures, witnesses, and a notary, some portions of the estate are distributed differently from others.
A life insurance pay-out can be made out to a designated beneficiary and paid out immediately after death, bypassing probate, and other will-related red tape. Instead of a one-time pay-out, an estate can be structured to develop and manage a family fortune for future generations, through the services of a professional trustee. Then, there are considerations between life and death – such as how to manage both financial and healthcare decisions while incapacitated.
Estate plans should aim to answer questions such as:
A succession plan determines who takes the wheel when the captain must invariably leave the ship. Some succession plans stop short of naming a new head of the company by instead providing guidance for the transition period between you leaving, and someone else taking charge.
Unlike estate plans, which generally go into motion upon your death, succession plans are not necessarily related to you passing. They are also relevant in preparing for retirement, moving on to a new phase in your life (such as public office), or simply when leaving the company to take on a different position elsewhere, such as being part of a partnership in a new and exciting business endeavor.
Succession plans should aim to answer questions like:
An estate plan must account for every aspect of your estate. That means the estate plan is as large and complicated as your estate.
You could manage all your affairs in a single will and create a simple power of attorney to account for incapacity.
Or you may require an estate plan that deploys trusts to reduce tax liability, shelter certain assets from creditors, and accounts for foreign assets. Some of the more common elements of an estate plan include:
Succession plans are less formal than estate plans. While an estate plan requires notarized documents and careful legal language, a succession plan could be an internal document kept safe by the vice president of the company or someone else in management, or a set of documents kept in a folder in your office, mentioned in a will. Some of the things you might want to do in preparation for a succession plan include:
If you own a business, you must not ignore your responsibility to plan for an unexpected end to your leadership. Even if you don’t plan to retire anytime soon, you should account for premature death and incapacity. What happens if you don’t come to work tomorrow? Who’s in charge, and what should be done?
It can be difficult and frightening to think about life after your own passing. But it’s also important to think about the grief and stress you can prevent with a little bit of planning. Talk to your attorney or an experienced law firm about estate and succession planning today.
Founded in 1975 by L. Rob Werner and serving California for over 50 Years, our dedicated attorneys are available for clients, friends, and family members to receive the legal help they need and deserve. You can trust in our experience and reputation to help navigate you through your unique legal matters.
Whether you need help creating a living trust or navigating probate, our living trust law firm's compassionate team of estate planning lawyers and probate lawyers are here to help you and ready to answer your questions.
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