What Is the Difference Between Business Succession Planning and Estate Planning?
One of the biggest misconceptions business owners face is that estate planning and business succession planning are the same. The two are different, but both are important.
Business owners have a lot on their shoulders when considering the future of their businesses. Unfortunately, succession planning can feel so daunting that many successful business owners put it off longer than they should. As a result, they fail to take action or succumb to misconceptions about what should be done.
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One of the biggest misconceptions business owners face is that estate planning and business succession planning are the same. Of course, the two are different, but both are important.
Understanding Business Succession Planning
Business succession planning relates to the business itself. The strategy enables the company to continue functioning successfully after the current owners cannot run it. This strategy focuses on providing clear direction for the business itself. It creates business continuity.
Current owners can ensure ongoing faith in business leadership through proper business succession planning. They can train and prepare someone highly qualified and familiar with the business to become the new leader.
This helps prevent power struggles between middle management leaders vying for promotions and helps preserve employee faith in the company. However, these struggles can have a tangible impact on the value of a business and are a risk when a business undergoes a significant change, like the death of the current owner.
A key and often difficult conversation for many business owners—especially the owners of family businesses—is about whether the next generation is equipped to run the business and whether they’re even interested in running it.
Often, a buy-sell agreement becomes a vital component of a business succession plan. The business is sold to a new owner upon a triggering event, such as the retirement or death of the current owner.
Understanding Estate Planning When a Family Business Is Involved
Estate planning is more than just business planning. Estate planning relates to transferring all assets (business and other assets) during the business owner’s lifetime, upon incapacity, or after death.
It relates to ownership interests in a business and what is to be done with other sources of wealth such as retirement accounts, investments, interests in property, and life insurance.
Conversations about estate planning can be deeply personal, especially when a family business stands to be inherited. Some adults and children may find themselves involved with the business, while some may not. The business owner often needs to ensure that everyone inherits fairly, whether their share is a business interest or another asset.
Tax consequences are also complex and nuanced for estate plans involving businesses. Failure to plan for the payment of estate taxes can be highly detrimental to the business. It’s not uncommon for a business to be sold to pay taxes.
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The Overlap Between Business Succession Planning and Estate Planning
There can be significant overlap between a person’s estate and business, especially when a family business is passed down through generations.
Business owners need to consider both a succession plan for the business and an estate plan.
Otherwise, families can become enmeshed in conflict. Emotions can run high, and so can the cost of subsequent litigation. Proper business succession planning and estate planning can preserve harmony while ensuring that a business can continue its success far into the future.
For more information about business and estate planning in Colorado, contact Hackstaff Snow Atkinson & Griess, LLC, at 303-534-4317 or visit our website.
Doug Griess and John Snow of Hackstaff Snow Atkinson & Griess, LLC, are top Denver business attorneys and litigators with expertise spanning various industries. Specializing in business law, litigation, intellectual property, tax law, and dispute resolution, Doug Griess and John Snow offer an in-depth understanding and knowledge of general real estate and litigation rules and regulations and are a trusted resource for business owners throughout Colorado.