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Why do I need a business succession plan as part of my estate plan?

On Behalf of | Oct 13, 2024 | Probate & Estate Planning |

A business or successful professional practice can be a strong incentive to draft an estate plan. It can also be a major complicating factor during the planning process. Frequently, business owners need to make appropriate arrangements to ensure that the right people inherit the company they started or purchased.

What they may fail to consider is the need to engage in succession planning. Succession planning is different from estate planning. It does not necessarily involve legal ownership of a business but rather control over daily operations.

Why do business owners usually need to create a succession plan in addition to establishing an estate plan?

A company needs genuine leadership

For many people, the businesses they started are perhaps the achievement that they are most proud of other than their families. Businesses tend to be vulnerable during times of transition, such as when an owner retires or dies.

Without a succession plan, a manager without the right skills or family member who inherited the business might try running the company after the current owner passes or becomes incapacitated. They may lack the ability to keep the company operating successfully.

Succession plans help ensure that the right party steps into a leadership role at an organization when the current leader dies or becomes incapable of performing their job. In a succession plan, a business owner can name the person they think should take over their role or outlines the credentials that the appropriate successor should have. A succession plan can include guidance for training that individual to ensure that they fulfill their role competently.

The unfortunate reality is that family members and heirs may not be the right people to take over business operations when an owner dies or has medical issues that prevent them from continuing to serve in their current role. The company could end up going under or sold off to an outside party. All the employees could end up out of a job, and the previous owner’s legacy could end up significantly diminished as a result.

Taking the time to draft a succession plan when creating an estate plan is a smart move for many business owners. Succession planning can give a business owner the confidence that comes from knowing that their organization should survive regardless of what happens to them.

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