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A Business Owner Estate Plan Is Key To A Successful Transition

Sam had developed and owned a successful operation during his business career. He also tried to be diligent by having what he thought was a sound estate plan executed before he died. He and his wife Sally felt they had everything taken care of. So when Sam died unexpectedly, Sally was dismayed to see the vehement dispute that developed between her two sons as to who would operate the company going forward. Apparently Sam had spoken to both of them about running the company if something happened to him, but he had failed to make this decision. Sally ultimately found her only choice to resolve the dispute was to just sell the business.

We have identified the top 12 principal reasons we've seen which have caused business owner transitions and exits to be unsuccessful. Each of these reasons impacts the company's ongoing annual profitability as well as an owner's transition and future exit results. Now let's address the third of these 12 reasons:

Reason #3. No Business Owner Estate Plan. You have not realized the difference between a regular estate plan and a business owner estate plan, and you have failed to adequately protect your family and address your family's needs and desires relative to your business. Have you established your family's financial if the unexpected happens to you? Depending on your personal situation, you may have financial and personal goals and objectives that include ongoing financial support for your spouse and family, funding for your children and grandchildren, charitable funding for your favorite charities, and helping to assure that your assets are transferred to your family members upon your death as quickly and simply as possible.

You may also have personal financial objectives which involve protection of your assets against unwarranted and unexpected, but potential future creditor claims, either from business operation exposures, personal accidents, personal injury, or other casualties and contingencies. In addition, you may want to assure that your estate, including your business interests, is arranged in a fashion to minimize potential death taxes. Lastly, you may want to address certain objectives for determining what is needed for running your business if something happens to you before your planned exit. This step addresses these needs.

As an owner of a business, you will often have needs which extend beyond the typical estate plan. This may be due to certain financial or business needs of the business or because of particular family issues which are already present or may arise upon your death or disability. In order to help address these types of specific estate planning issues, you may want to consider the use of the following

  • Successor CEO. Your estate plan can designate your recommended successor CEO for the business. This is particularly important if at least two children may each claim that you intended to appoint them to run the company.
  • Specific Bequest to Business-Active Children. If you have one or more children who are active in the business and one or more children who are not, your estate plan can make a specific bequest of your business ownership interest to the active children.
  • Non-Active Children Equalization. When the business ownership has been specifically allocated in your estate to one or more children active in the business, an equalizing share can be allocated to non-active children through a specific bequest of other financial assets.
  • Family Business Representative. In those situations where your trustee is not well-equipped to make business decisions impacting your ongoing business, a family business representative can be appointed in your estate plan to make business decisions relating to management of the business.
  • Business Sale Instructions. Your estate plan can contain sufficient details to provide instructions on how and to whom your business can best be sold or transferred should you die or become disabled before you complete your exit.
  • "Sweat" Equity Allocation. Your estate plan can include an allocation with regard to your business assets which recognizes the "sweat equity" contribution of those children who have been active in the business but who have been under-compensated based on their contribution to the success of the business.
  • Dispute Resolution. Your estate plan can include a dispute resolution provision which prevents a dissatisfied child from disrupting business operations.
  • Financial Resource Reserve. If your business needs your ongoing financial support in order to thrive, then your estate plan can designate that a reserve portion of your estate be held as a financial resource to help support the business and/or its credit needs.
  • Family Council. Your estate plan can designate a family council to be established to enable your spouse and adult children to be apprised of ongoing business operations and to discuss resolution of business matters impacting the family.


Our Next Step Transition Growth and Exit Planning program has been specifically designed by us to address and overcome each of the 12 principal reasons for failure. This program consists of 12 critical building blocks. We are using this program around the country to help business owners design and implement their transition growth plans for accomplishing their transitions and exits successfully.

--Andrew D. Horowitz, CPhD, is a wealth advisor and president of The Estate Management Group. The firm's website is www.EMGPlanning.com.

Nicholas K. Niemann, Esq., is a transition and exit planning advisor and a partner in the law firm of McGrath North. The firm's website is www.McGrathNorth.com.

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