As a law firm that serves business owners in Long Island and New York City, Davidov Law Group attorneys are highly experienced in matters involving both estate planning and succession planning. Business owners require a greater level of planning to ensure that their company is properly managed following their death, and this is where understanding estate planning vs. succession planning becomes essential. The following are two issues that we commonly address in our practice.
What If My Heirs Want to Manage the Business?
Whereas estate planning refers to the structuring of a person’s personal income, property, and assets, succession planning is focused on businesses. Many business owners use succession planning to create a solid continuity structure for their company. Estate planning vs. succession planning is a key consideration for many business owners, as estate planning for personal assets is not adequate for managing a company following the business owner’s death.
Succession planning encompasses the set of strategies that a business has in place to pass down leadership roles to ensure that a business will continue to operate without interruption. If a proper plan is in place, it is possible to pass ownership and management of a business to specific named heirs. The following considerations may be included when creating a succession plan for your business:
- What are the interests of the business and your loved ones?
- Who will own the business and who will manage it?
- How will estate taxes liabilities be addressed by the business?
- Can ownership be transferred during your lifetime?
- How will your heirs be trained and supported while operating the business? How will responsibilities and authorities be delegated to your heirs?
- How will key employees be retained after you pass away?
At the minimum, an effective succession plan should include a system for transferring management and ownership of a business. Failing to create an effective succession plan can force your business and assets to go through probate, which can create major tax liability issues and legal complications. In essence, it is fully necessary to have a plan in place for business succession before the death of the owner. If a plan is in place, it is possible for your heirs to manage the business.
What If My Co-Owners Want to Buy Out My Family?
Many business owners express concerns surrounding inheritance buyouts. In cases where a co-owner of a business passes away, the other co-owners may want to buy out the family members of a deceased owner. In situations where you and your co-owner are equal shareholders, the buyout process will go according to the terms of your buy-sell agreement. A buy-sell agreement can be structured to require the sale of the deceased owner’s interest back into the company or to co-owners.
Including a buy-sell provision is not legally required by New York State law. If there is no buy-sell agreement, however, the buyout process is much more complicated. Your family can refuse buyout, but this can result in company dissolution or sale to a third party. If your family agrees to the buyout, negotiations will likely occur to reach a fair amount. Buyout payments can be paid as a lump sum or in installments, depending on the agreement reached by your co-owners and family.
To avoid disputes and interruptions to the management of your business, it is highly beneficial to include a buy-sell agreement in your succession plan. Without these provisions, your family members and loved ones may be forced to make difficult decisions regarding your company. A business succession attorney can help structure your succession plan to account for buyout and other management issues.
Consider Contacting Davidov Law Group Today
Creating an effective business succession plan requires early action and careful planning well before any succession issues arise. Without a succession plan in place, your family may be held liable for business debts and taxes, face issues regarding co-owner buyouts, or lose the business altogether during the probate process. For this reason, seeking legal guidance from a professional business succession attorney is valuable.
At Davidov Law Group, we employ innovative strategies to fully protect our client’s business and the interests of their loved ones following their death. To learn more about how we can create a business succession plan that benefits you and your family, consider contacting our office at 516-908-8689 today.
