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Business Succession Planning

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Everyone is uncomfortable discussing the death of a loved one and its possible consequences on family, and their business.

We know and understand that.

We are a compassionate firm that will help you deal with any and all matters relating to your estate planning and business succession to be sure that your wishes will be carried out. Call us. Talk to us and see for yourself. We’re here to help you.

CALL US TODAY

(888) 318-4430

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Business succession planning refers to the practice of using estate planning strategies to increase the chances for the survival of your family business when you retire or die unexpectedly.

How do I know if I need business succession planning? The following Checklist will help you decide if you need business succession planning:

1) If you die unexpectedly, can your family continue to run your business? If your family cannot run your business, who can?

2) Do you know how to give it away, but still maintain control? Probably not, but your estate planning attorney does. There are various estate planning strategies that allow you to reduce your ultimate taxable estate yet retain control over family business decisions.

3) If you die unexpectedly, and have partners, will they pay your family a fair price for your business? When you are gone, you need a mechanism to ensure that your family is treated fairly by your partners.

4) How do you know if your buy-sell agreement is well prepared? A. Does your buy sell agreement provide which events trigger the requirement that the remaining owners purchase the interest of the departing shareholder. These should include at least:

  • Death
  • Disability
  • Incapacity
  • Bankruptcy
  • Loss of a professional license
  • Failure to properly carry out the owner’s expected duties
  • Retirement

5) How is the price of the departing owner’s interest determined? A. Perhaps the most sensitive, and equally as important as the funding method, is the method to determine the price of the departing owner’s interest. The most frequently used methods are:

  • By appraisal
  • Book value
  • A multiple of annual earnings
  • Replacement cost of hard assets
  • As agreed upon annually

Book value, multiple or earnings, whatever “earnings” means, and replacement cost of hard assets are susceptible to manipulation, when you may no longer be around to protect your family, and are therefore risky. Appraisal and as agreed upon annually will generally aid in reducing the potential for conflict when a purchase is mandated.

6) Have you considered the impact of estate taxes on your family business? A. As the goal of business succession planning is to transfer the family business to the junior generation in a manner that increases the probability of success, estate taxes are a prime consideration.

7) How would your estate planning attorney use a partnership or limited liability company to enable you to give it away but maintain control? A. Your estate planning attorney would prepare an agreement, assume a family partnership, and have you transfer your financial and investment real estate into the partnership in return for 2% general partner interests and 98% limited partner interests. You would then begin the process of making gifts of the limited partnership units to your children or trusts for their benefit. But because you retain the 2% general partnership interest, you are in control. You can give it away but maintain control.

8) Are you concerned enough to take action? A. The skills of your advisors or the importance to your family of business succession planning are meaningless, unless you take action. The most important aspect of business succession planning is for the owners to become convinced that they need to take positive steps or have their family business disappear due to a lack of planning. Do not let that happen to your family business.

The skills of your advisors or the importance to your family of business succession planning are meaningless, unless you take action.

The most important aspect of business succession planning is for the owners to become convinced that they need to take positive steps or have their family business disappear due to a lack of planning. Do not let that happen to your family business.

CALL US TODAY

(888) 318-4430

Prefer to email? Click here

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Hess-Verdon & Associates
A Professional Law Corp.
620 NEWPORT CENTER DRIVE, SUITE 1030
NEWPORT BEACH, CA 92660
(949) 706-7300 FAX (949) 706-7373