There will be a time when you must start to think about life after your passing, particularly from a logistical perspective. We each have assets, tangible and intangible, that are attached to our name. Assets could be our home, bank account, vehicle, business, investment property, and more. These items cannot follow us after death, so they will have to be distributed somewhere. Arranging for belongings to be transferred or sold after death is usually the primary task for an estate plan. But what happens in regards to a business? Well, as a Shreveport, LA succession law firm lawyer from Theus Law Offices explains, this is where succession plans are useful.
If you own a business, then you have to consider both your estate plan and succession plan, since they are intertwined and ideally are written together. An estate plan that is carefully written, but doesn’t have consideration for sale of the business, may end up losing its tax-free status, meaning that a bulk of the profits made from the sale would go to the government. But this is only one circumstance. Estate planning and succession planning are equally important, especially if you are a business owner.
An estate plan has a set of documents that instruct what is to be done with the assets in an estate. An estate is viewed as anything you owned after passing away, including retirement accounts, properties, bank accounts, life insurance payouts, bonds and securities, valuables, and more. But there is more to establishing an estate plan than just a series of papers saying that you want certain things to happen to your items. The documents you write will need to be signed and properly witnessed too, so that the estate plan is legally-binding and will stand if under examination by the court. Before your estate plan is considered complete, it will need to have instructions for:
- Who gets which assets from the estate
- How the estate will be distributed (through a trust, will, beneficiary designation, etc.)
- Who will become guardians over your minor children
- Who will handle any financial or health decisions for you in the event you become incapacitated
- An explanation for how and why you divided assets between relatives, friends, charity organizations (if you anticipate a dispute)
- What will happen to debts and if creditors may affect your estate plan documentation
A succession plan determines who should take over if the business owner were to move on with their life path or pass away. Some succession plans do not include naming a new head of the business, instead it offers guidance for the transition between when the business owner dies and another takes charge. Unlike an estate plan, succession plans may not always come into effect due to your death. Succession plans also entail preparing for retirement, leaving a company to accept a position elsewhere, or when entering public office. A comprehensive succession plan will outline the transition of leadership, who is to be in charge of the business, changes in company vision or mission, whether the business will be sold, and tax implications.