COVID-19 update: A message from our partnersRead more
You’ve worked hard to build your business. But have you done one of the most important aspects of wealth planning – preparing for what will happen to the business when you are no longer involved?
Who will take over? How much will your heirs inherit when the time comes? Is your estate protected from unnecessary taxes?
No one says it will be easy to formulate a strong succession plan, but the consequences of not having one make the time and effort worthwhile.
A business with no succession plan and inadequate estate planning can find itself in general chaos upon the retirement or death of a significant own – and possibly dealing with excess estate taxes and family feuds.
Here are five common problems that may arise when succession planning isn’t addressed.
1. Inadequate or nonexistant communication
If the family has a mission, then everyone has a role in its success. But members of the senior generation and their children often don’t discuss exactly what the plan is, who gets what, what will happen when the business owner leaves the company, or who will be responsible for what duties.
2. An over-promising parent
The parent promises all things to all children but doesn’t put a plan in place to ensure promises are kept. This results in disappointment, anger and confusion when the owner retires or dies.
3. Unprepared heirs
Parents risk leaving their heirs unprepared and open to family conflict when they don’t discuss the nature of their assets or other business-related matters. Sometimes they even set up trusts with which heirs are not familiar or leave their heirs assets without preparing them for the impending responsibility.
4. Delayed planning
There are numerous effective ways to help minimize tax and succession problems. But procrastination can make it difficult, if not impossible, to implement effective strategies when they are needed. Early planning is essential.
5. Lack of liquidity
Failure to plan ahead can cause havoc and hardship for families who want to buy out the business when the owner is alive or for survivors who may be faced with massive bills and no way to easily pay them. A family without sufficient liquidity to pay estate taxes could be forced to sell the family business to pay the taxes.
If your company does not have a succession plan, contact your CPA to begin the process.