Business succession planning is a necessity for Californians who operate their own business or hold a significant stake in a private company. While many people choose to detail their succession wishes in a will, planning should be more comprehensive. When you pass off the reigns to a business, you may be passing off steep tax penalties and other unexpected financial issues to the person who will take over. An experienced estate planning attorney can help alleviate the burdens of business succession while improving the odds of successfully passing down a cherished company to the next generation. The Law Firm of Kavesh, Minor & Otis Inc. can assist business owners with: Planning for business sucession

  • Arranging the legal aspects of a business transfer
  • Planning for cases in which a business owner may be incapacitated and unable to make their own decisions
  • Identifying cost-effective ways to pass on a business or business assets upon death

Why You Need a Business Succession Plan

If you are a small business owner, you should not put off planning your business succession. Waiting too long or delaying until retirement could jeopardize your company’s future. A number of widely-reported studies have shown that many family-owned businesses in the United States have surprisingly short lifespans. Cornell University compiled a set of statistics that show:

  • Less than half of all family-owned businesses survive succession to the second generation of owners, and only about 13% make it to a third generation.
  • Family-owned businesses frequently collapse upon the founder’s death.
  • When the founder of a family-owned business passes away unexpectedly, the odds are even lower for an orderly succession.

While these statistics may seem unfavorable for business owners, business succession planning can increase the chances of a successful transition of a family-owned business after an ownership change.

Business Succession Techniques and Tactics

Every business is as unique as its founder—which means, every business needs a custom-made succession plan. However, every small business owner’s succession plan should include the following items:

Business powers of attorney.

This allows another individual, or fiduciary, to act on the owner’s behalf in the event the owner becomes incapacitated due to an accident, age, or illness. While there are different kinds of powers of attorney, they broadly enable an individual to make specific financial and business-related decisions for someone else.

A will.

This allows for the distribution of business-related assets or benefits to specific heirs and beneficiaries.

A revocable living trust.

This can be considered a substitute for a will. Revocable living trusts allow an individual to transfer assets into the trust while they are still alive and to retain full control over the trust and its assets until death. But since these assets are held by the trust, they may be passed to heirs outside of the California probate process, substantially easing the pain of transition.

Trusts have an additional benefit: they are highly customizable, and the founder can set specific conditions about asset distribution and disbursement. If a small business owner wishes to place their business or business-related assets in a trust, they may make an heir’s right to succession contingent upon certain conditions or require that a company’s assets be used in a particular manner.

Grantor Retained Annuity Trusts

Another potential option for business succession is the grantor retained annuity trust (GRAT). Unlike a revocable living trust, a GRAT requires that the founder make a one-time, irrevocable transfer of property into the trust. The grantor may then receive a fixed amount of money—or annuity—for a specified number of years. After this time has elapsed, the trust’s remaining assets will be passed off to its designated beneficiaries.

GRATs can allow business owners to transfer their assets to family members or other loved ones while still benefiting from the company’s holdings in retirement. However, GRATs are more complex than other types of trusts and should only be formed after consulting an experienced estate and business planning attorney.

The Limited Liability Company

Other business owners may want to consider making their business a limited liability company (LLC). Forming an LLC can be beneficial in the context of business succession planning and estate planning. A business owner with an LLC can reduce taxes on the transfer of properties, assets, and gifts to loved ones. If a business owner creates an LLC long before their anticipated retirement, they may be able to transfer hundreds of thousands of dollars in penalty-free ownership shares to their intended successors, easing any eventual tax obligation.

Additionally, LLCs offer another tax incentive: they may be exempt from the compressed income tax rates often applied to trusts.

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.


Philip J. Kavesh
Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.