Estate Planning Cincinnati: Business Succession Planning

Small businesses make up over 95 percent of U.S. employers, and more than 50 percent of small business owners are 50 or older.  Most small business owners understand the importance of traditional estate planning, such as the preparation of a will and a living trust. In fact, most Americans aged 65 and older have an estate plan. However, studies have found that 60 percent of small business owners do not have a Succession Plan. Although estate planning and succession planning go hand in hand, they are separate legal concepts.  As a result, businesses often fail when the principal dies, retires or otherwise becomes incapacitated.  These businesses don’t fail because of a lack of estate planning, but for a lack of succession planning. The absence of a viable business succession plan lends itself to fighting, disagreements, and in the worst situations – litigation between family members, over the ownership and control of the business. The last thing that any business owner should want is a nasty fight between his or her own family members because no direction was given on what to do after the business owner retires, dies or becomes infirm. A functional succession plan will usually require the assistance and advice of an attorney, an accountant, and a financial advisor. The process, however, is not painful if done correctly and really boils down to one primary inquiry: what do you want to happen to your business when you die or retire? The most common concerns which should be addressed in a business succession plan are: ·                     The importance of continued family ownership and management of the business; ·                     The future cash flow needs of the current business owners; ·                     The tax implications of selling or otherwise transferring business interests to family members or third parties, including gift and estate tax implications; and ·                     The implications of an unforeseen death or divorce of the business owner(s). Choosing the right professionals is half the battle. While there are many good attorneys that regularly assist clients with estate planning and there are many good accountants that regularly assist clients with the preparation of income tax returns, competent business succession planning typically requires a unique knowledge and understanding of business law and estate and gift tax law that many attorneys and accountants are not regularly exposed to. Many reputable business succession planning attorneys will not charge you for the initial consultation. Modern business planning, more often than not, includes a trust component as well. Revocable living trusts and irrevocable trusts are routinely used to hold ownership interests in businesses. Incorporating trusts into a succession plan is intended to streamline succession and also to minimize the chances of family feuds concerning the ownership and control of the business through the generations. Trust drafting can also be complicated. A poorly drafted trust oftentimes creates more problems and end up defeating the goals of the business succession plan. Paying an attorney (let’s face it, we’re not cheap) is for many an undesirable act, especially for a product that does not spring into action until sometime in the future. As the old saying goes though, an ounce of prevention is worth a pound of cure. Getting your business succession plan in place now can save your family from a disaster down the road. Paul Kellogg is an attorney in Cincinnati with the Phillips Law Firm, Inc. Paul’s practice focuses on providing comprehensive estate planning and probate services to families and business owners, as well as serving as outside general counsel to entrepreneurs and businesses where he provides guidance and advice on a wide variety of transactions and disputes.  He can be reached at (513) 985-2500 or via email at [email protected]   Please explore Paul’s other articles on estate planning and business on the Phillips Law Firm Blog page. The article is for educational and informational purposes only and does not constitute legal advice. Anyone contemplating taking legal action is urged to obtain proper legal advice from an attorney licensed in your particular jurisdiction. For an initial consultation contact us at (513) 985-2500 or email us at [email protected] or click Chat Now!® to get started immediately.