Succession Planning

August 11, 2014

Do you own a business? Work in a family business? Does a succession plan exist? Has it been committed to writing?

You’ve probably heard about the generational transfer that we’re in the midst of. The link, which is from YouthBridge Community Foundation, estimates the total transfer at $41,000,000,000,000. No, not $41 billion, but $41 trillion! And that’s in 1998 dollars, which are now worth $1.42. Lots and lots of money, and while the article addresses the accuracy of the $41 trillion estimate, we’re talking about lots and lots of money in any event.

Estate planning matters, and for a small number among us, estate taxes matter too. My subject today is more limited, however. I am focused on succession planning for business owners. (You should not be surprised by the fact that a big chunk of the assets being transferred from one generation to the next are locked up in small/medium-sized business value.)

Succession planning certainly involves a will and, perhaps, a trust. More directly, however, effective succession planning addresses “what happens to the business?” Here are several options:  (1) shut it down; (2) sell it to a third party; (3) leave it to the spouse, the children, or a subset of spouse/children; (4) create an employee stock ownership plan (ESOP); or (5) sell it or leave it to a smaller group of employees. Tag-a-longs include dealing with partners—the five options assumed no partner/fellow owner—and funding the purchase.

In my practice I have dealt with all of these options and issues. One strand runs through every situation:  the best outcomes result from long-term, clear-headed thinking and planning. “Leaving it to the kids” when they lack the skill sets which are required for success is no favor, and that is true, especially, when their personal dynamics may be challenging. (That’s “polite-speak” for “they hate one another.”) Sales after death, or when buyers know your options are limited, result in low offers. Partners don’t always come through, and often have no interest in having your family as a replacement for you. Life insurance may be a great solution for funding a buy-out, until you all realize you’re uninsurable, you have a $1,000,000 policy, and a $10,000,000 business. Etc., and with the recognition that having an ownership interest in a $10,000,000 business should be everyone’s problem!

The estate planning and business practice groups at Mesch, Clark & Rothschild are putting together a fall program on business succession issues. No date or place yet, but it’ll likely be in October, it’ll last about an hour, and there will be refreshments. We’ll cover the issues I’ve mentioned here, and others, in lay-speak. (Obviously, with an hour or so, we’re doing an overview, not an in-depth program. Depending on interest, we may follow-up with additional programs.)

Contact me at if you’re interested in attending, or if you have questions about business succession issues.


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