At first, estate planning and a business succession plan might seem the same. However, they are two different processes that help ensure a smooth transition of assets and delegation of responsibilities. These plans help with the transfer of wealth in a person’s personal and professional life. If you want to know the difference between estate planning and business succession planning, here are a few points you will want to know.
In the event of a person’s incapacity or death, an estate plan protects the individual’s assets and distributes them according to their wishes. These plans create a streamlined approach to transfer assets, minimize taxes, and designate beneficiaries.
An estate plan will include several key components, such as:
- Will: This document details the distribution of the person’s assets. If there are minor children, the Will also designates guardians for them.
- Trusts: A trust and its trustee manage assets for an individual or entity. Whether established as a revocable or irrevocable trust, these trusts can help minimize estate taxes and avoid probate.
- Power of Attorney: With this document, a designated person has the authority to make medical or financial decisions for the individual if they become incapacitated.
- Healthcare Directive: This document is also known as a Living Will. It defines the person’s medical treatment preferences if they cannot communicate their wishes.
- Beneficiary Designations: Insurance policies and retirement accounts often require designated beneficiaries. These beneficiaries are often the same individuals named in the Will. However, it is still important to make sure the proper people are named to receive these payouts.
Business Succession Planning
With this type of plan, the focus is a little different. A business succession plan outlines the transfer of ownership and management of a business. Sometimes, ownership is passed to the next generation in a family, while other businesses may have a plan for the sale of the company. These plans make sure that the business will continue in the event of the owner’s death.
Some parts of this succession planning include:
- Exit Strategy: Most business succession plans will have an exit strategy for the owner. This part details what happens in the event of a person’s retirement, death, or sale of the company.
- Successor Identification: A business cannot operate without the proper leadership roles in place. This section names the potential successor in the family or organization who will take on those positions.
- Valuation of the Business: All businesses should have their worth assessed from time to time. With that, there is a better chance of getting fair market value for the company.
- Buy-Sell Agreements: These terms and conditions outline which interests can be sold or bought if the owner retires or passes away.
- Tax Planning: In any situation, tax implications must be addressed. These strategies can minimize any tax liabilities regarding the sale of the business.
Do Estate and Business Succession Plans Work Together?
While estate planning and business succession plans have different purposes, they often intersect. Most of the time, business assets are a large component of an individual’s estate. A smooth transition of these assets can help with the person’s overall wealth management. You may want to create both plans together to avoid conflicts and make sure that your personal and business interests align in harmony.
Create an Estate and Business Succession Plan to Protect Your Interests
There is a difference between estate planning and business succession planning. However, these plans are not mutually exclusive. Instead, they are two sides of the same coin. Proper coordination between the two will help you make sure you have a comprehensive approach to wealth transfer and business continuity. Contact the Bielski Chapman, LTD team to learn more about estate or business succession planning. To schedule a free 15-minute consultation, please call our office at (312) 583-9430.