Do You Have a Business Succession Plan in Place?

Do you have a business succession plan in place?

Provided by RBC Wealth Management and The Neuman Wealth Management Group

If you are a business owner, you always have a lot on your mind: meeting payroll, coping with competition, attracting new customers — the list goes on and on. However, even though you’ve got plenty to do today, you still need to think about tomorrow — specifically, you’ll want to consider a business succession plan.

Ultimately, your choice of a succession plan strategy will depend on a variety of factors, including the size of your business, the amount of control you wish to retain, and for how long, and whether you want to keep the business in the family.

In any case, however, you’ll find it useful to be somewhat familiar with some common succession planning techniques. Here are a few to consider:

• Transfer business with a buy-sell agreement — When you establish a buy-sell agreement, you’re creating a legally binding contract that governs the conditions of a future sale or buy-back of your share of the business. For example, if you die, a buy-sell agreement could allow a business partner or a key employee to buy the business from your surviving spouse or to whoever inherits your estate. To provide the funds needed for the partner or employee (or even one of your children) to purchase the business, you could name this person as the beneficiary of an insurance policy owned by the business. Under this scenario, you’d keep control of the business throughout your lifetime.

• Sell your business interest — If you just want to retire, you can choose to sell your business and use the cash as you choose. You can also stipulate that the business be sold after your death, but your family or estate may have difficulties in negotiating with a potential buyer. Of course, as an alternative to selling your entire business, you could sell a certain percentage of it, but you’d be losing some control.

• Transfer your business interest through lifetime gifts — By making gifts during your lifetime, you can gradually transfer your business interest to one or more family members. Currently, you can gift up to $13,000 per year, per donor, without incurring any gift taxes. And since you’ll be moving the business out of your estate, you may help your family avoid estate taxes. Of course, as you make gifts, you will give up some ownership control.

• Transfer your business interest at death through a will or trust  —  If you want to control your business until you die, and you know who you want to take it over upon your death — such as a current employee — you might want to transfer it through your will or a living trust, which, if properly structured, can still provide income to your family upon the transfer of the business to a non-family member.

All the above options can be complex, so before choosing any of them, you will need to consult with your legal and financial advisors. But don’t wait too long to get started — the sooner you have your plans in place, the better. 

This article is provided by Eric St. Martin, a Senior Financial Associate at RBC Wealth Management in Stillwater, MN, and was prepared by or in cooperation with RBC Wealth Management.  The information included in this article is not intended to be used as the primary basis for making investment decisions nor should it be construed as a recommendation to buy or sell any specific security. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance. RBC Wealth Management does not provide tax or legal advice.  For additional information, please visit www.neumanwmgroup.com

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