If you own a business or hold a substantial interest in a private corporation, you may have already considered creating a succession plan. However, while many Californians believe they can pass the reigns to the next generation by writing a simple will, doing so often leaves their heirs with unexpected challenges.
Why Having a Business Succession Plan Is so Important
Owning and operating a small business can be extraordinarily fulfilling. However, running any commercial enterprise can also be exhausting. For better and for worse, business owners often forget their company could outlive them. This can lead to significant and sometimes irreversible complications.
- A majority of family-owned businesses collapse and fail after the owner’s death.
- Fewer than half of all family-owned businesses survive to a second generation, with scarcely 10% lasting beyond a third.
- Family-owned enterprises that lack a comprehensive estate plan are among the least likely to survive succession.
Your Options for Ensuring an Orderly California Succession
While you might already have an heir in mind, having a concrete succession plan can make a business succession substantially easier.
How to Make a Succession Easier
Write a will
A will is a simple succession instrument that allows for the distribution of business-related assets to beneficiaries. However, a will is a relatively simple document. Without any further contingencies, your business assets could become entangled in probate or litigation.
Delegate the business powers of attorney
If you are ever incapacitated by an injury, disease, or illness, you might need a loved one to temporarily assume limited control of your business assets. The business power of attorney allows another individual to make specific financial and business-related decisions on your behalf. Anyone delegated this power of attorney is considered a fiduciary, meaning they have a legal responsibility to act in the best interest of the company.
A trust can be considered a superior alternative—even a replacement—to a traditional will. When you establish a trust, you can transfer personal and business assets into its possession. While you are still alive, you will retain total control over all trust assets. However, unlike assets distributed through a will, trust assets are exempt from probate.
Create a Grantor Retained Annuity Trust (GRAT)
A GRAT allows the founder to make a one-time, irrevocable transfer of property to the trust, after which you receive a fixed amount of money for a pre-specified period of time. Once the trust lapses, the remaining assets are distributed to your named heirs.
Consider structural changes
You might consider reforming your business entity as a limited liability corporation (LLC), which enables you to nominate heirs as business partners. An LLC could also provide concrete tax benefits while you are still alive.
Do You Need To Speak With An Attorney About Estate Planning?
If you need to speak with an experienced estate planning lawyer please contact us online or call us directly at 800.756.5596 to first register for one of our free, informative seminars. Your attendance will qualify you for a special discount for our estate planning services should you decide to make a free appointment at the conclusion of the seminar and choose to proceed with us. We proudly serve clients throughout California with offices in Torrance, Newport Beach, Orange, Woodland Hills and Pasadena.