Perhaps you have been so busy building a successful company that you have not yet considered how to pass it along when the time comes.
There are various options for developing a succession plan that goes into effect when you retire or when you die.
Creating your succession plan
The first task is to create a succession plan that will allow a smooth transition for the ownership and management of the business. Pertinent points include:
- Developing and training your successors
- Delegating responsibility and authority
- Planning for the retention of key employees
- Coordinating the roles between business owners and managers
- Considering the best interests of both the business and the owner’s family
- Planning the timing of the business transfer during your lifetime
Leaving the business to co-owners
If you plan to leave the business to your partners or co-owners, you can create a buy-sell agreement. You can also establish an irrevocable life insurance trust or ILIT to provide the liquidity necessary for such a transfer.
Leaving the business to family
If you wish to transfer the business to your family members, you might consider setting up a grantor retained annuity trust or GRAT. This will also allow you to retain a source of income. Moreover, the trust offers protection in that any business appreciation will not be subject to estate taxes. Another way to minimize taxes is to establish a family limited partnership to hold the assets of the business.
There are many benefits to creating a succession plan that benefits you, your family, and, if applicable, your co-owners. With the appropriate legal guidance, you can find answers to any questions you might have as you develop a plan that works for the future of your business.