As a business owner, your company is likely one of your most valuable assets. To ensure its survival and seamless transition after you step down or pass away, it’s essential to integrate your business succession plan with your estate plan. Doing so not only helps mitigate tax liabilities when transferring ownership to the next generation but also provides your family with a clear, organized path for the future.
A robust estate plan begins with several critical documents, starting with a basic will. A will specifies how your assets, including your business, will be distributed among your chosen beneficiaries. Without a will, or if your assets are untitled, state laws will govern the distribution—potentially conflicting with your personal wishes.
Another crucial document is a financial power of attorney (POA), which designates someone to manage your affairs if you become incapacitated. This "attorney-in-fact" can conduct essential business transactions on your behalf. It's important to complement the POA with health care directives to ensure comprehensive planning.
If your business assets are substantial, it’s wise to take advantage of available federal estate tax breaks. These include the unlimited marital deduction and the federal gift and estate tax exemption, which, as of 2024, shields up to $13.61 million. Keep in mind that some states also impose estate or inheritance taxes, so your plan should account for both federal and state obligations.
You may also consider more advanced strategies to reduce tax exposure, such as creating multiple trusts or establishing a family limited partnership (FLP). With an FLP, business assets are removed from your taxable estate, and you can gift limited partnership interests to family members at a reduced valuation, helping to lower overall estate taxes.
For many business owners, passing the company on to their children or a trusted successor is a major goal. A detailed succession plan can help ensure that this transition happens smoothly—whether upon your retirement or due to an unexpected event.
A well-structured succession plan should outline who will take over, their roles, and any special compensation or training required for a successful transfer of leadership. This plan must be in writing and coordinated with your estate planning documents. It should also include financial details such as current assets, liabilities, and the business's value. Regular updates to the plan are crucial to reflect changes in your business and personal circumstances.
One of the challenges of business succession is navigating family dynamics. Elevating one family member to a leadership position can create tension among siblings, especially if others are left out or given lesser roles.
An effective estate planning strategy can help balance these dynamics. For example, if your business is worth $5 million and you have $5 million in other assets, you could leave the business to the child involved in running it and give the other child assets of equal value. This approach can help “even things out” and prevent future disputes.
There’s no one-size-fits-all solution for business succession and estate planning. Your plan should reflect your unique circumstances, business structure, and long-term goals. Working with experienced estate planning and business advisors can help ensure you’re well-prepared for a smooth and tax-efficient transition, leaving you with the peace of mind to enjoy your retirement.
By integrating your business succession plan with your estate plan, you can protect your legacy and ensure a smooth transition for your family and business. Reach out to a HoganTaylor advisor today to learn more about how we can help you build a full-scale solution to fit your individual needs.
HoganTaylor Wealth provides an integrated approach to investment and financial planning and is a registered investment advisor and subsidiary of HoganTaylor LLP. HoganTaylor Wealth takes pride in serving clients as an independent fiduciary through holistic financial planning. Learn more at hogantaylor.com/wealth.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.