We work with business owners, in conjunction with their own individual estate plans to have in place a workable business succession plan for their heirs and/or key employees. Far too often, successful family businesses do not have a business succession plan. As part of this planning, we also counsel business owners to have enough life insurance on themselves in the event of their sudden death so their family has adequate cash to maintain their current life style without having to sell assets and/or the business at a fire sale just to pay the bills. There needs to be a substantial amount of cash to weather the storm until things can be sorted out and a plan put in place to either continue the business or sell the business. This will take some time to work out. It should be noted here that the face value of life insurance is part of a person’s gross estate (even though it is income tax free to the beneficiary) and therefore that fact must be taken into consideration when drafting the business owner’s estate plan. There are ways to keep life insurance out of a person’s gross estate which we explain in depth to a client when we prepare their estate plan.
Business owners need to have a succession plan in place to allow the business owner to comfortably retire with sufficient assets. Too many times a business owner thinks he has a plan in place (his children will take over the business) only to find out his children don’t want any part of the family business and his key employees can not afford to purchase the company. What the owner thought would happen with the business was only his dream. Thus the client/owner has to stay longer in the business than he wanted, or worst yet realizes that his life long creation will die with him and not be the legacy to his children.