Succession Planning

By: Martin M. Shenkman, CPA, MBA, JD

This is the process of planning for who should own and operate (and these two issues both need to be addressed, and they are often addressed independently) a business in the event a current owner or manager/executive becomes disabled, dies or retires. A component of this planning when a family or closely held business is involved is the estate tax implications of the plan. However, since the amount excluded from the estate tax in 2009 is $3.5 million few family and closely held businesses will have to face this issue (but for those that do, it remains vital). Too often succession planning is not addressed in its broad sense, leaving out disability, or just focusing on death. A buy sell agreement, whereby remaining partners buy out the interests of the disabled, deceased or retired partners is one component of this planning. A commonly used approach to this is for the business owners (e.g., partners) to set a price for the company in a document called "Certificate of Stated Value". If anyone dies, etc. during the next year that value governs. This avoids the complexity of having appraisals completed. This approach is not without complications and issues. There are a myriad of approaches. Larger privately held companies might consider an ESOP as part of their succession plan.

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