Articles Posted in Succession Planning

Couple rainy day 5.6.2016Yes, you have an organizational style. It may be chaos, or it may be hyper-organized. Either way it is still a style. Moving from paper to digital feels more organized, but it also requires management.

There are a number of different ways to approach any problem, including getting financial documents in order. Some people pile papers in a stack, promising to get to them some rainy day that doesn't seem to arrive. Others are calendar driven, filing and shredding at the end of every quarter. Still others hoard documents, shoving them in overstuffed filing cabinets. Millennials keep nothing on paper, operating under the expectation that any needed documents will be easily downloaded when they are needed.

Morningstar's article "How to Organize Your Financial Documents" acknowledges that it's getting easier to go with option three and rely exclusively on digital resources to manage and track your financial accounts and pay bills. Financial services will remind us that paperless is the green way to go. Assuming you take some commonsense actions to protect against financial fraud, it can also be very safe. However, before you go the minimalist route, put some basic infrastructure in place with these steps.

Woman on keyboardIt's amazing how quickly a business can get picked to pieces after the death of an owner. With the use of good estate planning, according to The Huffington Post article, "5 Things Estate Planning Can Do for You and Your Business," you can protect your business and your legacy. Otherwise, your business is at the mercy of government taxes, co-owners and even family members who will stake their claims.

Use estate planning to avoid unfortunate events and to prevent seizure and depreciation of the business assets. This can decrease the stress and hassles that occur immediately after you die. Here are some good estate planning ideas to help protect your business.

  1. More options for your business. Solid estate planning gives you the option of buy-sell agreement. If your business has one or more co-owners, this agreement ensures that upon the death of any owner, the interest of the deceased is automatically purchased by the other owner(s). The beneficiaries of the deceased owner, such as the spouse, children, or other family member won't unintentionally become owners. This strategy can alleviate some stress in an already stressful situation, immediately after the death of an owner or part owner of a business.

Bigstock-Couple-running-bookshop-13904324Estate planning for the owner of a family business is more complex and requires more thought than estate planning for an employee who owns a home and investment accounts. In "Five things you should know about estate planning for a family-owned business," Smart Business points out, in five broad strokes, key aspects that need to be considered when making an estate plan for the business owner that include protecting the business and family members.

Identify and prepare your successors. Smaller businesses may need someone to oversee a sale or liquidation. Communication with and buy-in by your team is critical. The group should have a clear understanding of your goals, what's intended and how to achieve it, way before the time comes.

Look at your liquidity needs. Business owners are often highly illiquid because of business value compared to other assets. Liquidity in your estate is important to provide for your family and replace your earnings. If estate tax is owed, your estate will need liquidity to pay those taxes or else face a forced sale of the business. Life insurance may be a good solution, with the structuring of life insurance policies through irrevocable trusts. The business itself could have a policy on you to help pay down debt, provide working capital, or replace your on-going contributions.

CornRegardless of the ultimate outcome – passing the farm to the next generation or selling it – creating a plan for the future requires a lot of groundwork and the help of an estate planning attorney with experience in family farm matters, according to The High Plains/Midwest Ag Journal's article, "Planning for the future of your farm operation."

A business plan can be an important tool in estate and succession planning. This is a roadmap for the farm business, and it gives your business direction, helps you make decisions, and can assist in the future.

Make sure that you have the terminology correct. "Estate planning" deals with the disposition of your assets during your lifetime or after your death, while a succession plan is the transitioning of your farm to the next generation or others to ensure the continuation of the business.

Bigstock-Couple-running-bookshop-13904324If you think of your business as a legacy that you wish to pass on to a family member, a partner or a valued employee, start planning now to create a business succession plan. Don't limit your thinking to a family member taking over for you. There are many different ways that small businesses continue after the owner has passed control of the company, but all require advance planning.

Interestingly,'s recent post, "The Show Must Go On: The Importance of Business Succession Planning," explains that there are some key underlying factors that determine whether a business succession plan is necessary. In some instances, it's easiest just to sell the business entirely, but other times there are partners who may want the business to continue operating after the founder is no longer involved. After determining if the business has the potential for long-term viability, an owner should have a succession plan that includes selecting a successor and getting the business appraised.

Selecting a Successor

Professor at chalk boardThe word is out in the estate planning bar that the IRS is looking at making an announcement this September about a favorite tax benefit gained from the use of family partnerships and LLCs.  New regulations would effectively raise the taxable value of assets transferred into these entities, which currently enjoy a generous discount. Wealthy clients are being advised to set up partnerships now to capture what remains of these discounts before the new rules take effect.

According an article in Barron’s titled “IRS Considers New Tax on Wealthy Families,” any changes to tax benefits affection family partnerships and LLCs could have significant consequences.

The article explains that partnerships and LLCs currently let families pass on a minority stake in the family business or in a pool of privately-held investments to their children with little or no tax consequences. This is because minority shares in a private business are illiquid, or unable to be easily sold or exchanged for cash without a substantial loss in value. They are worth less, from a tax perspective, than their stated market value. This is a big help to families who want to lower the taxable value of their assets, and in some cases below the $5.43 million gift-tax exemption. It also works even if the underlying investments getting passed on are liquid. The discount could be as much as 20% to 25%.

Business legsOwners who are personally and emotionally involved in their businesses, including farming operations, often consider what will happen to their businesses, farms and business assets when they are no longer involved. Planning for the disposition of a business is different than estate planning. While many think they are the same process, they are really very different.

Estate planning concerns the transfer of assets, including wealth, of an individual from one individual to another or to an entity, such as a trust, and this occurs only when the person passes away. Ownership of a business and business assets, whether they are tangible or intangible, can be transferred to a legal entity, whenever the owner chooses. The Columbus (NE) Telegram’s article, “Estate planning and business transition quite different,” discusses these two different kinds of transactions.

Business transition is simply the transfer of a business asset or the entire entity from an existing owner who has decided to retire or move on. This usually occurs during the life of the existing owner. However, when a business transfer takes place after the death of the owner, it’s usually part of an existing or implied estate plan or asset transfer process.

Bigstock-Couple-running-bookshop-13904324Many business owners fear losing control. Before they’re willing to address exit or estate planning options, they must first be assured of complete dominion over their business. So let’s look at how to lock in ownership.

Are you worried about losing control of your business?

A recent Forbes article, Control Freaks Take Heart: How To Maintain Control Of Your Business, offers some ways to assure firm control of a closely-held company.

Man holding computerSuccession planning where company ownership is concerned can be fairly complicated, but at a simple level every plan is based on two basic issues. You’ve probably thought a lot about who will take over for you; that’s one. But, just as importantly, how can you make sure what you want to happen will happen? Without the right short- and long-term plans in place, it won’t.

Business succession planning focuses on two main concerns. On the one hand, what will happen way down the line when you're ready to give up the business? And, on the other hand, what will happen to the family business if you pass away tonight?

What is needed is a tiered approach as explored in a recent Forbes article titled “Don't Let Your Family Business Die With You.” This may require both short-term plans and long-term plans.

HandshakeWhile valuations aren’t out of hand now, offers may climb as competition heats up.

Your business is likely an inherent part of your life. The decision to part ways with your business is complicated. It can't be easy to hand over your life's work. Nevertheless, there comes a time when it’s worth selling the business and also a time when the market is right. The mergers and acquisitions market is heating up, so is the time right for you too?

The mergers and acquisitions market is fickle, but currently seems to be on an upward swing. A recent article in Forbes reports that this swing seems to be catching even middle market companies. The article has a catchy title, too: “Why More Entrepreneurs Will Get A Phone Call Worth Millions. 

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