If a business owner suddenly becomes incapacitated or passes away, and wants the business to continue operating, a succession plan becomes urgent. The reason is that quick decisions may need to be made in an emergency, or if the business changes ownership or is sold, the going concern value must be preserved.

If you exclude your business from your estate plan because you assume it will simply shut down upon your retirement or death, the ones who ultimately suffer will be your family.

Business Succession Planning is the plan to transfer ownership, either at retirement or to children or partners, while protecting the value of the business as much as possible.

No one wants to sell a lifetime’s worth of work at a discount just to pay income taxes, gift taxes, or estate taxes. Even if the business is eventually sold, if the owner wishes to pass it on to family and keep operations running smoothly, the succession plan must include business continuity and tax-saving strategies. To prevent exposure to business risks and minimize liability while the business is still operating, it should be protected through a Living Trust or Asset Protection Trust to avoid potential losses.

One of the biggest reasons business owners create estate plans is to minimize taxes. Even if the business value declines after death, estate taxes are applied based on the value as of the day before death. If the business must be sold quickly to pay estate taxes within nine months, it is often sold at a discounted price, sometimes at 35% to 50% of its actual value.

To prevent the family from having to pay taxes on a business that no longer operates, you must optimize transferability in your business succession plan, and for small businesses, be able to demonstrate a limited value in order to avoid unfair estate taxes on a closed business.

For a Limited Liability Company (LLC), an Operating Agreement must be prepared. This document governs business activities and defines the relationship between members. It outlines who has major authority, who will take over, and how ownership interests should be handled.

If there are partners, a Buy-Sell Agreement should be prepared in case one becomes incapacitated or dies. This document should specify how the interest will be bought or sold, whether certain partners are to be excluded, or whether interests are to be given to a spouse or children.

Preparing this helps prevent disputes between partners and family and minimizes future losses.

A sole proprietorship is considered part of personal property, so the business and the owner are legally the same. A plan should be made to determine what happens if the owner becomes incapacitated or dies.

In a family-run business, shares can be distributed according to each person’s contribution. For example, if the son works in the family business but the daughter is not involved, more shares can be given to the son, while the daughter can receive life insurance or other assets to ensure a fair inheritance and prevent conflict between children.

Shouldn’t the business you’ve built with years of hard work be preserved and passed on smoothly, no matter what happens to you?