According to a recent national survey, 25-33 percent of family business shareholders who are nearing retirement haven’t completed any estate or succession planning other than writing a will. Some experts project that 75 percent of all family businesses will fail after the death of the founder. Business succession planning involves much more than just deciding how your assets will be divided after you die – it contemplates how the business will thrive after the founder is long gone.

A good business succession plan creates a road map for partners, heirs and successors to follow in the event of your death, disability or retirement. This plan can include a program for distribution and/or sale of business equity and other assets, repayment of business debts, purchase of life insurance policies to ensure liquidity, buy-sell agreements between partners and their families, division of responsibilities and authority to run the business among successors, and any other elements that affect your business assets. The plan usually contains guidance on how to determine the value of your business. It also must be flexible, recognizing that business, family and health situations are dynamic, and your plan must be easy to modify and amend.

Part of the business succession planning process involves an understanding of how the business will be taxed for estate planning purposes. Will the business cause the founder’s estate to incur significant estate taxes that must be paid within nine months of death or will there be sufficient liquidity from life insurance proceeds to negate the tax burden? Alternatively, does the founder control enough equity in the business so that taxes can be deferred under Code Section 6166 for up to 15 years? Can you mitigate the impact of the estate tax by engaging in lifetime gifts and sales of equity interests to your family, successors or trusts for their benefit?

To obtain assistance with your business succession planning needs, please call Wayne Zell at 703-218-2177 or email him at wayne.zell@ofplaw.com.

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