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Business Succession

Business succession planning is one of the most intellectually stimulating areas of estate planning.  Running a successful family business takes imagination, stamina, guts, and competitive drive.  Every entrepreneurs deserves the greatest respect, whether running a hot-dog stand on a street corner or a chain of five-star restaurants.  However, in the intense struggle to succeed the entrepreneur often fails to plan for business termination or succession.  It is a fact that everything comes to an end.  Failing to plan for handing over the business to the next generation or selling it can have serious consequences.  An entrepreneur who does not train his or her replacement is heading for the commercial equivalent of a train wreck.

We have all seen family businesses that failed when sons and daughters tried to step into the shoes of a parent, without proper training or simply not caring about what they inherited.  Developing a plan for gradual takeover by younger managers is the most important step in avoiding business failure.

Selling a business can be a disaster without proper preparation.  For example, Roger and William had a successful cartage company with $1,000,000 in fully-depreciated rolling stock.  When they decided to retire, they were able to find a buyer for their equipment, but they received far less than they had expected.  The company was organized as a “C” corporation and when they sold their fleet of trucks and liquidated the corporation they received a million-dollar check.  Since this sum was all received in one year, they paid both corporate and personal income tax on the whole amount in one year.  They netted less than $400,000 after taxes.  Roger and William could have avoided all that corporate tax if they had reorganized the corporation and paid themselves salary, benefits like health and long-term care insurance, and pensions.

There are many external threats to an ongoing business—recessions In the economy, market entry of new competitors, and obsolescence of equipment or products.  Entrepreneurs are good at recognizing external threats.  They are not as perceptive when it comes to internal threat, such as disability, retirement, or death of a key executive.  There are many ways to protect a business when it becomes necessary to change management or business.  An experienced estate-planning attorney will explain how the value that is built up in a family business can be passed on, generation after generation.
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