Plan beyond the present

Your business deserves an “estate plan” that prepares it for whatever comes next

You’ve invested much into making your business successful: hard work, time, money, energy. It’s hard to imagine your business without you, but a thoughtful succession plan can help ensure your business enjoys continued success for generations to come.

Protecting your legacy

A thorough succession plan, one designed to protect your business and your legacy, considers the whole picture, including your exit from the business, your retirement needs and your personal estate. It answers questions like:

• How can you protect your business and benefits to ensure continuity long term?
• When considering retirement, how can you gracefully exit the business and realize the maximum value for your hard work?
• How are your staff and customers protected if something happens to you unexpectedly, such as disability or incapacity?

Whether your plan involves a family heir, someone outside the family, an outright sale, or an expert to take over until your chosen heir is fully prepared, succession planning can begin with foundational steps before considering more advanced planning strategies, depending on your business’ needs.

Succession strategies

The financial implications of business succession are complex, but you and your financial advisor can consider several options to help you refine your plan. Some key strategies are:

• Gifting shares of the business to family members or heirs over time, either outright or through a trust or family LLC structure. This can provide flexibility, allowing you to maintain oversight while the next generation prepares for ownership responsibilities.
• Buy-sell agreements that outline what happens to ownership if you retire, become disabled or pass away. This helps protect your business by providing clarity on how ownership will be transferred or sold, giving you and your team and family confidence that the business will continue smoothly.
• Key person insurance to help protect the business financially if you are no longer able to work, helping maintain operations and retain ownership of important assets like intellectual property.
• Disability and incapacity planning, including who will manage operations or make financial decisions if you’re unable to.

As your business and goals evolve, additional strategies may also become part of the conversation, such as:

Intentionally defective grantor trust – This is a sophisticated planning strategy to transfer assets from one generation to another, while potentially minimizing income, estate and gift tax liabilities. Families with closely held business interests often use this structure to freeze the current value of the assets while shifting future appreciation outside of the grantor’s estate.

Grantor retained annuity trust – This is another estate freeze technique that you can use with assets that you expect to appreciate significantly. This is one technique that can transfer wealth with little practical impact on the underlying transaction, yet with substantial wealth transfer results.

Intra-family Loan (including a Self‑Cancelling Installment Note) — When an intra-family loan is used to finance the sale of a business interest, the purchasing family member agrees to make installment payments to the seller over a specified term. In some cases, the loan may be structured as a self‑cancelling installment note (SCIN), where the remaining balance is cancelled if the seller dies before the note is repaid. Because of this mortality risk, the note includes a premium that is reflected in either the purchase price or interest rate. Selling a business interest to a family member in a lower tax bracket may reduce overall family tax liability while shifting future appreciation outside the seller’s estate.

Strategic sale of the business – For some owners, selling the business may be the most effective succession strategy. Considerations include deciding whether to pursue a cash or all-stock sale, ensuring the full value of the business is realized, how any commitments you make as part of the sale will affect your lifestyle, as well as how you’ll invest and manage the sale proceeds. A professional advisor can help you explore avenues for your unique situation.

Depending on the approach, these strategies may involve gift and estate tax considerations, formal business valuations and ongoing administration costs.

While these conversations with family members and business associates can be difficult, they can also bring comfort in knowing everyone is on the same page about the future success of your business.