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Why you may need both business succession and estate planning

Commentary

Emily Menjou is a certified trust and fiduciary adviser, vice president and personal trust fiduciary manager, Exchange. She has a bachelor’s degree from Sonoma State University and has completed graduate level courses in Tax and Estate Planning at Golden Gate University.

She is a past president and member of the Redwood Empire Estate Planning Council, board vice president for Community Matters, and a current member of Leadership Santa Rosa's class 36. Menjou manages the Personal Trust team, focusing on areas of trust administration and estate settlement.

For even the most successful business owners, succession planning and estate planning can be difficult to discuss.

While both are vital for legacy protection, they are often overlooked or lumped together in clients’ minds. Although estate planning and business succession planning are certainly connected, it is important to understand the differences between the two. The care you take in implementing each plan will have a significant impact on the ongoing success of your business and financial goals.

Estate planning refers to the process of preparing for the efficient transfer of your assets at death, or the management of your assets during a period of incapacity. Proper estate planning will ensure that your assets are managed and ultimately transferred in accordance with your wishes.

Estate planning also has the capability of reducing exposure to estate and other taxes, to arrange for professional investment management for yourself or future generations, and to bypass probate (the court supervised process of administering a person’s estate). The following are key estate planning documents which every business owner should have:

  • Living trust
  • Will
  • Durable powers of attorney for finances and health care
  • Beneficiary designations

How succession planning is different

Unlike estate planning, which focuses on the totality and transfer of your assets, business succession planning is specific to the continuity of your business. Succession planning is a strategic tool to smoothly transition operation, management and ownership to partners, future generations or successor owners.

Succession planning typically includes the following considerations:

  • Leadership positions and skills which are vital for business success
  • Training and leadership preparation inside the organization
  • Future needs of the business
  • Future vision for the business
  • Viability of business under control of future generations

For family-owned businesses, owners must seriously consider whether future generations are interested and equipped to successfully transition into a leadership role. Business owners must also consider whether liquidity from the business will be necessary for long term financial health.

In many cases, a buy-sell agreement is a key component of a business succession plan, particularly in cases where a business is operated with a partner, or where key stakeholders have already been identified. A buy-sell agreement is an arrangement where the business interest is sold upon a triggering event, such as the retirement or death of a business owner.

Business succession planning should solidify the continuity structure for your business, whatever your wishes may be, while estate planning allows the opportunity to carry out your wishes for all of your assets (business and otherwise) during your lifetime, during a period of incapacity, and after your death.

If you own a business, both types of planning are essential to help to streamline the transfer of your assets, to maximize family harmony, and ultimately to protect the legacy you’ve worked hard to create.

I’m a big subscriber to the old adage: “There’s no time like the present,” which applies perfectly to business succession and estate planning.

For this reason, we always encourage our clients to begin planning discussions with their estate planning professionals as soon as possible.

Commentary

Emily Menjou is a certified trust and fiduciary adviser, vice president and personal trust fiduciary manager, Exchange. She has a bachelor’s degree from Sonoma State University and has completed graduate level courses in Tax and Estate Planning at Golden Gate University.

She is a past president and member of the Redwood Empire Estate Planning Council, board vice president for Community Matters, and a current member of Leadership Santa Rosa's class 36. Menjou manages the Personal Trust team, focusing on areas of trust administration and estate settlement.

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