Business owners need to make estate plans just like everyone else. These can be very useful tools for making end-of-life decisions, passing assets to the next generation and much more.
That said, many of these owners want to pass the business itself on to their adult children. For one thing, the business is a valuable asset that they have invested time and money into over the years—or even decades. At the same time, the business is a consistent source of income, so they feel that they are giving their adult children a type of financial stability they may not have otherwise.
However, there are steps business owners need to take to create a business succession plan. Simply naming the next owner in a will and leaving them the business directly does not set them up for future success.
What is included in a business succession plan?
There are many different steps to take regarding business succession, starting with identifying the beneficiary or beneficiaries who will be taking over the business. The succession plan can define the roles and responsibilities that they’ll have. Business owners often want to bring the successor on in advance and give them on-the-job training. They may work in a more minor capacity at the company, where they can observe and learn in real time so that they’re actually ready to run the business when they eventually take over.
In this sense, while a business succession plan is certainly related to an estate plan, they are both doing separate things. It’s very important for business owners to understand how they work together, what documentation is necessary, and what legal options they have to create the appropriate plan for their family.